IntroductionThis paper will provide a review of the compliance r.docx

Introduction
This paper will provide a review of the compliance report based
on the general conducts of the medical staff at USA Community
Hospital. The validity of patients’ claims for denial of services
will be investigated and a mechanism to address such claims
will be also provided. The primary roles that the staff can play
in upholding ethics at their work place will be provided and
legal consequences for non-compliance will also be stipulated.
A Plan to Investigate the Validity of Patients’ Claims for Denial
of Services
1. Identification of Allegations and Issues to be Investigated-
The issues to be investigated include the allegation of denial of
services to the HIV/AIDS patients. Other issues to be
investigated include patient review registries, and standard
procedures surrounding the ethical treatment of patients with
HIV / AIDS. These follow complaints that were brought forward
by the public that the professional staff at USA Community
Hospital were denying HIV/AIDS patients proper treatment.
2. Investigative Strategy- The investigation will involve a
request to the patients who suffered the discriminative treatment
to come forward for individual interviews to help in finding out
more about their allegations. The medical files of these patients
will be checked to verify their claims and to identify any sign of
negligence on the doctors’ part. Finally the mentioned medical
personnel will also be individually interviewed and thoroughly
investigated. The interview panel will be chaired by the head
healthcare administrators and other members will consist of the
quality assurance manager, case manager, and file coordinator.
3. Sources of Evidence- The sources of evidence will consist of
any violation of applicable laws, procedures, regulations, or
ethical guidelines as pertained to the hospital patient treatment
regulations. Other sources of evidence will involve
documentation such as notes on the patients file, patients’ lab
reports, e-mail exchange between the patients and doctors, and

the personal files of the involved professional staff. Witnesses
and physical evidence such as video records will be used.
4. Special Considerations- This process will involve use of
power as provided in the US constitution. It will also involve
surprise visits to the alleged doctors’ to find out how they treat
their patients. Reluctant witnesses will be identified and
interviewed.
5. Required Personnel and Resources- The process will involve
a wide range of personnel and resources. Experts and lawyers
for the victims and the accused personnel will be required in the
process. Medical Psychologist and Psychiatrist will also be
invited to help identify the validity of statements from the
complainants as well as the accused. Enough time, rooms, and
other facilities such as remunerations for the panel members
will also be considered and made available.
6. Milestones and Timelines- This whole process goal is to only
take two months to get to completion and to report. The first
week will entail the filing of complaints by the victims,
preparation of the complainants’ interviews, and full panel
selection. The second week will involve complainants’
interviews while the third week will involve sourcing for the
presentable evidence. The final phase will involve interviewing
the accused personnel and drafting the report of the
investigation in the fourth and fifth week respectively.
The Role of Staffing Levels in Upholding Ethical Conduct
Treating Patients with Dignity- The physicians and nurses are
expected to treat their patients with the highest possible level of
dignity. According to the American Medical Association,
(1997), patients should not be tortured or placed in emotional
conditions that go beyond their personal, spiritual, or religious
beliefs unless it is completely necessary and done in the interest
of the saving the patient’s life.
Making the Patients Records Available to Other Physicians-
Medical staff can help in upholding ethical practices by
promptly making available the medical records of their past

patients to the present physicians who are currently treating the
patients any time when need arises, (Stanford & Connor, 2014).
This involves putting the interest of the patients above anything
else to ensure that the patients get the best treatment possible.
Ethical Obligations of Medical Directors- According to the
American Medical Association, (1977) medical directors have
an ethical obligation to the medical field and because of that
they should place the interests of their patients before business
and personal interests by ensuring non-discriminative and equal
treatment to any and all patients. They are also expected to
apply fair and just criteria when making care related decisions.
Ensuring Confidentiality of the Patients’ Information-
According to American Medical Association, physicians should
not disclose the private information provided to them by their
patients, (Stanford & Connor, 2014). However, in cases where
the disclosed information by the patients threaten other peoples’
lives, the physician is authorized to inform the police.
Patients Information- The physicians who treat the patients
should deal with them in the most honest and open way. The
patients should be notified of all the important information
concerning their health conditions and their actual medical
status to free them of any mistaken beliefs about their
conditions.
Ethical Obligation of the Nurses- The nurses must treat their
patients with the utmost respect. In cases of emergency, the
nurses are allowed to act in the best interest of the patient in
cases where the attending physician is absent to save the
patients’ lives. The physicians are obligated to listen to the
concerns of the nurses about the patients and fully explain the
situations to the nurses.
A Plan to Relate Legal Ramifications to HIV/AIDS Patients
This plan details the legal ramifications that the medical
personnel who fail to ethically treat their patients will be
subjected to. However, before the staff is subjected to the legal
ramifications, the allegations will have to be investigated and
identified as legal malpractice. Medical mal-practice is defined

as the failure of the doctor to exercise the degree of care and
skill that surgeons and physicians that belong to similar medical
specialties would be expected to apply under the related
circumstances, (Black, 2007).
The stages in the process will involve;
Identification of Malpractice- The first stage of the process will
involve identification of the malpractice such as neglecting the
HIV/AIDS patients, refusing to treat the HIV/AIDS patients,
showing discrimination during the treatment process, leaking
the medical information and records of the patients, and
confiding information from the patients. These malpractices
will be identified through complaints from the patients.
Investigation of the Claims- In order to carry out a fair trial
process, the claims laid against the medical personnel will be
investigated by thorough interviews, analyzing the medical
reports and files of the patients, and interviewing witnesses.
Trial Process- Based on the evidence of the investigation, the
complainant and the accused will be placed before the court of
law for final judgment. If the accused is found guilty of
unethical treatment of the patients they will face the standard
legal ramifications.
Legal Ramifications
Criminal Conviction- Depending on the type of the unethical
behavior committed, the medical professionals will be subjected
to criminal charges when found guilty. Practices that lead to the
death of the patients or cause them additional physical injuries
will automatically result in criminal prosecution, (AMA, 2015).
Withdrawal of Medical License and Loss of Job- Medical staff
that are found to have continuously violated the medical code of
ethics of the hospital will lose their working position. Their
medical licenses could be confiscated to prevent them from
practicing medicine in any other hospitals in the country. The
withdrawal of a medical license will consequently cause the
doctors to stay out of medical practice for some-time or fully
lose their jobs.
Financial Compensation- Depending on the injuries caused by

the unethical treatment, the perpetrator of the crime will be
obliged to pay off the victim in terms of financial
compensation. This will be subject to the level of damage
caused and the decisions of the court. This compensation may
also be raised voluntarily so as to discourage other medical
professionals from unethical practices.
Community Relations Plan
This plan is aimed at reassuring the local community that USA
Community Hospital does care for their patients and has full
intentions of treating those living with HIV/AIDS with the
utmost respect and the required level of dignity.
Activities: The program will entail lots of communal activities
that will be carried out jointly by the hospital and the
community. One of the programs will be diminishing the
stereotypical views of HIV/AIDS patients who might have been
subjected to cruelty by the hospital personnel or the community.
The victims of AIDS will form a group which will visit the
hospital for the diminishing program every week. Another
program will involve taking food donations for the HIV/AIDS
victims, this program will ensure that people living with AIDS
eat a balanced diet in order to improve their already weakened
immunity or condition. The hospital will also provide free and
private HIV/AIDS counseling each week. The hospital in
collaboration with the able and willing community members
will be visiting HIV/AIDS patients and helping them out in
their homes. This will be done the first and third Friday of each
month.
Activities Schedule: The food and other supplies donated to the
HIV/AIDS will be taken to the patients at the end of each
month. The home visits will be done on the first and third
Friday of each month, except for month of December where the
last visit will accommodate the holidays. The diminishing of
stereotypes program will be done every Tuesday for the whole
year while the free counseling will be done on every Monday
and Wednesday for the whole year.
Budget Plan: The program will budget and plan for four mini

buses, ten professional hospital staff, several community
volunteers, ten professional counselors, $500,000 budget for
initial donations, donors, and counseling facilities
Conclusion
The compliance report used was based on the general conducts
of the medical staff at USA Community Hospital. The validity
of patients’ claims for denial of services was investigated and
addressed with 6 thorough steps The primary roles that the staff
can play in upholding ethics at their work place was provided
by outlining 6 of the main staffing components as well as the
legal ramifications for non-compliance with HIV/AIDS patients.
The Community Relations Plan proposed gave a thorough
insight into planned activities that would take place weekly and
monthly. Hopefully through much community action the caring
reputation of USA Community Hospital will be restored to the
fullest extent.
1
M A R C H 2 0 1 3
Beyond corporate social
responsibility: Integrated external
engagement
Companies must incorporate interaction with stakeholders into
decision making at every level of the organization.

John Browne and Robin Nuttall
s t r a t e g y p r a c t i c e
2
Traditional corporate social responsibility (CSR) is failing to
deliver, for both
companies and society. Executives need a new approach to
engaging the external
environment. We believe that the best one is to integrate
external engagement deeply into
business decision making at every level of a company. In this
article, we show how to make
that kind of integrated external engagement (IEE) a reality. We
set out to answer three
questions. Are companies doing well at external engagement?
Where might they be going
wrong? How can they do better?
Are companies doing well at external engagement?
Properly understood, external engagement means the efforts a
company makes to manage
its relationship with the external world. This relationship can
and should include a wide
variety of activities: not just corporate philanthropy, community
programs, and political
lobbying, but also aspects of product design, recruiting policy,
and project execution. In
practice, however, most companies have relied on three tools
for external engagement: a
full-time CSR team in the head office, some high-profile (but

relatively cheap) initiatives,
and a glossy annual review of progress.
That traditional approach has had some positive effects.
Companies certainly consider the
external environment more carefully than they did in the past,
and their philanthropic
programs have helped many people. But in a majority of cases,
CSR has failed to fulfill
its core purpose—to build stronger relationships with the
external world. The Occupy
movement in the United States is the most visible sign of
discontent, but polls show that
levels of trust in business are below 55 percent in many
countries. A significant minority
views business executives as villains, enriching themselves at
the expense of society. Even
firms with the glossiest CSR reports have found themselves cast
as public enemies. Take
major Wall Street firms in the aftermath of the financial crisis
or BP after the Gulf of
Mexico spill: their relationships with the external world have
been shattered, and they
have lost billions of dollars of value as a result.
Many executives recognize that their current approach is
inadequate. In a recent McKinsey
survey of more than 3,500 executives around the world, less
than 20 percent of the
respondents reported having frequent success influencing
government policy and the
outcome of regulatory decisions.1 This problem creates an
opportunity for significant
competitive advantage. In marketing or operations, companies
struggle to raise their
performance a few percentage points above that of their

competitors. But as leading-edge
companies such as Statoil and Unilever have discovered,
effective external engagement can
set you far above your rivals.
1 “Engaging and understanding governments: McKinsey Global
Survey results,” mckinseyquarterly.com, January 2012.
3
Where are companies going wrong?
Executives should not blame themselves alone. One reason they
struggle is that the
expectations of citizens and governments have never been
higher. Companies are expected
not only to obey the law or meet certain standards within their
own businesses but also
to ensure high standards across their supply chains. Large
companies are expected to
go further still, helping to solve major economic,
environmental, and social problems—
even those unrelated to their businesses. Moreover, as the
expectations of citizens have
increased, so has their power to scrutinize. Digital
communication has enabled individuals
and nongovernmental organizations (NGOs) to observe almost
every activity of a business,
to rally support against it, and to launch powerful global
campaigns very quickly at almost
zero cost. High expectations and scrutiny are here to stay.
Successful companies must be
equipped to deal with them.

What is wrong with CSR? Why have well-resourced teams,
backed by the authority of
CEOs, failed to deliver on their core purpose? In our
experience, that centralized approach
has four serious flaws.
First, head-office initiatives rarely gain the full support of the
business and tend to
break down in discussions over who pays and who gets the
credit. Without the active
participation of the big-spending functions—typically,
production and marketing—the
ambitions of a central team are difficult to realize.
Second, centralized CSR teams can easily lose touch with
reality—they tend to take too
narrow a view of the relevant external stakeholders. Managers
on the ground have a much
better understanding of the local context, who really matters,
and what can be delivered.
Third, CSR focuses too closely on limiting the downside.
Companies often see it only as an
exercise in protecting their reputations—to get away with
irresponsible behavior elsewhere.
Effective external engagement is much more than that: it can
attract new customers,
motivate employees, and win over governments.
Finally, CSR programs tend to be short-lived. Because they are
separate from the
commercial activity of a company, they survive on the whim of
senior executives rather
than the value they deliver. These programs are therefore
vulnerable when management
changes or costs are cut.

Michael Porter and Mark Kramer summarize the result: “a
hodgepodge of uncoordinated
CSR and philanthropic activities disconnected from the
company’s strategy that neither
make any meaningful social impact nor strengthen the firm’s
long-term competitiveness.”2
2 Michael Porter and Mark Kramer, “Strategy and society: The
link between competitive advantage and corporate social
responsibility,” Harvard Business Review, December 2006,
Volume 84, Number 12, pp. 78–92.
4
How can companies engage more profitably?
In response to this problem, a number of observers have
proposed new intellectual
frameworks to analyze how businesses manage their
relationships with the external world.
Almost all of these frameworks, including Porter and Kramer’s
“shared value”3 and Ian
Davis’s “social contract,”4 share a core idea: companies must
deeply integrate external
engagement into their strategy and operations.
The logic is simple and compelling. The success of a business
depends on its relationships
with the external world—regulators, potential customers and
staff, activists, and
legislators. Decisions made at all levels of the business, from
the boardroom to the shop
floor, affect that relationship. For the business to be successful,

decision making in every
division and at every level must take account of those effects.
External engagement cannot
be separated from everyday business; it must be part and parcel
of everyday business.
In our experience, most executives share that objective, but
many do not know how to
achieve it. What can you do to integrate external considerations
into decision making
across a business? To build on our own experience at BP and
McKinsey, we spoke to seven
leaders who excel in this area. We conclude that you need to do
four things: define what
you contribute, know your stakeholders, apply world-class
management, and engage
radically. We discuss each element in turn.
Define what you contribute
“We are finding out quite rapidly that to be successful long term
we have to ask: what do we
actually give to society to make it better? We’ve made it clear
to the organization that it’s our
business model, starting from the top.”
—Paul Polman, CEO of Unilever
Every company makes a significant contribution to society. At
the most basic level,
businesses offer goods and services people want. In the process,
they provide capital, jobs,
skills, ideas, and taxes. But many companies don’t emphasize
that contribution. Internally,
they focus on what they can get from society: cheaper inputs,
higher prices, and kinder
regulation. Externally, they promote their tiny CSR-related

contributions—vaccines they’ve
donated, say, or playgrounds they’ve built—ignoring the vast
contribution made by the day-
to-day business.
This focus creates two serious problems. Externally, it
undermines credibility. If your
company exists to extract value from society and tacks on a few
CSR initiatives to “give
3 Michael Porter and Mark Kramer, “Creating shared value,”
Harvard Business Review, January–February 2011, Volume 89,
Number 1–2, pp. 62–77.
4Ian Davis, “The biggest contract,” the Economist, May 26,
2005.
5
back,” no one will believe a word you say. Citizens, NGOs, and
regulators will tend to view
your efforts to engage—even genuine ones—as cynical and
selfish maneuvers. In that
climate, cooperation is very difficult. Internally, the same mind-
set hinders the integration
of external engagement into daily activities. The goal, as BHP
Billiton’s outgoing CEO
Marius Kloppers describes it, is for “every single employee,
contractor, and supplier to take
responsibility for social issues.” That is very difficult to
achieve if these parties behave as if
their relationship with the external world was essentially
extractive.

Companies that succeed in building a profitable relationship
with the external world
tend to think very differently: they define themselves through
what they contribute. This
approach does not mean changing purpose; it means being
explicit about how fulfilling
that purpose benefits society. Nor does it mean abandoning a
focus on shareholder value;
it means recognizing that you generate long-term value for
shareholders only by delivering
value to society as well.
That point may seem to be an intellectual or linguistic
distraction, but a CEO’s vision
for a company has a powerful practical impact. Take Paul
Polman, whose bold strategy
we quoted above. His approach has been formalized in the
Unilever Sustainable Living
Plan (USLP), which sets a clear goal: to double the company’s
sales while reducing its
environmental impact. The plan explains why that goal makes
business sense, what targets
the company must hit en route, and how it will do so. Every
employee can understand what
the company wants and how he or she fits into that goal. Like
other companies following
similar strategies—AstraZeneca, GE, and PepsiCo, for
example—Unilever hasn’t got there
yet. But with the USLP, Polman has laid the foundation for
external credibility and internal
transformation.
Redefining the way a company thinks about itself requires
leaders to promote their vision
again and again with unremitting energy, both internally and
externally. Duke Energy’s

Keith Trent emphasizes this point: “Whether it’s the CEO or his
or her senior leaders, the
biggest job is creating that vision for the company.” That
involves a significant personal
risk because you have to take on incumbents who benefit from
the status quo. All of the
leaders we spoke to had met with resistance from other
executives, shareholders, and
competitors. Daniel Vasella, the former chairman of Novartis,
puts it well: “When people
believe change will only cost them, you can be sure they will do
everything to make change
fail or not even start.” Leadership requires you to put your
reputation on the line and to
bring people with you. Make it clear that they can choose to
engage with the world—or they
can leave.
6
Know your stakeholders
“Companies often focus on speaking about our needs and our
business, trying to persuade
people about the soundness of our activities. We would be more
effective if we understood
stakeholder dialogue as an exercise to listen and understand.”
—Helge Lund, CEO of Statoil
Our second maxim of integrated external engagement is to know
your stakeholders. That
idea may sound obvious, but many executives do not take it
seriously. Knowing your
stakeholders means more than writing down a list of risks they

could pose, having a cup of
tea with some NGO heads, and holding a few focus groups. It
means understanding your
stakeholders as rigorously as you understand your consumers.
The McKinsey survey found a strong correlation between the in-
depth profiling of
stakeholders and success at engaging with them. Sixty-seven
percent of respondents from
successful companies report that they are very effective at
understanding the priorities
and objectives of the stakeholders, versus 28 percent of
respondents from less successful
companies.
Effective marketing relies on a detailed knowledge of the
preferences and resources of
consumers. Likewise, effective external engagement relies on a
detailed knowledge of
the preferences and resources of stakeholders. That means
learning, on an individual
and institutional level, what they want, when they want it, how
much they are prepared
to compromise, how your activities affect their goals, and what
resources and influence
they can bring to bear. Companies can gain such a detailed
understanding only through
a rigorous and exhaustive process, including personal
conversations with stakeholders,
expert analysis (from external sources where necessary), and
specialist monitoring of the
Internet and social media. Research may sometimes take place
at the corporate level—to
develop an overview of strategic social issues—but more often
at the level of a single facility,
market, or project. As we discuss later, line managers must have

the skills, incentives, and
resources to conduct that research.
Sometimes it takes more innovative methods to acquire the
necessary knowledge. In
2002, BP began developing the vast Tangguh gas field, in West
Papua, Indonesia. The area
was rife with social issues: political separatism, land disputes,
human-rights abuses, and
environmental degradation. Construction required the relocation
of one village to two
new resettlement sites. An independent advisory panel was
established to hear community
concerns, encourage debate, examine BP’s activities, and report
its findings publicly and
fully—all without influence from BP. That gave the panel’s
reports credibility and gave
the company’s leadership a far greater understanding of the
issues than would have been
possible if the research had been left to executives caught up in
the project’s technical
challenges. BP’s approach may seem expensive and even
dangerous, but it is essential, and
7
far cheaper than misunderstanding social issues, making
mistakes, and being driven out
by local resistance, government decree, or international
pressure. To act in ignorance is to
take a huge risk.
Thorough stakeholder research not only summarizes issues and
interests as they stand

today but also identifies potential problems and opportunities
before they arise. That
allows a company to act before its competitors do. Paul Polman
describes how a lack
of foresight hurt Unilever: “We missed the issue of obesity and
the value of healthy
and nutritional food. We were behind, while Nestlé was riding
that wave. Not being in
tune with society, with the benefit of hindsight, can cost you
dearly.” The closer your
relationship with stakeholders, and the greater your expertise,
the more likely you are to
spot the trends that seem so obvious in hindsight.
Apply world-class management
“There are the guys and girls sitting at the top who are
wrestling to ensure that in the long
term they do the right thing. Then there are the people who are
asked to deliver. The
question is how do they react and behave?”
—Martin Sorrell, CEO of WPP
Companies that succeed at integrating external engagement into
their businesses see it as a
critical contributor to profitability, not as some woolly
qualitative activity. They manage it
like any other business function, using the three core tools of
great management: creating
capabilities, establishing processes, and measuring outcomes.
Creating capabilities
Employees need the right skills to include external
considerations in their decision making.
That starts at the top, as Statoil’s Helge Lund explains: “We
have to have 360-degree

leaders. They have to be good businesspeople who can develop
talent and build business
relationships, but they also have to genuinely understand the
requirements and the
expectations of external society.” CEOs are responsible for
ensuring that their senior teams
are as capable at external engagement as at internal management
and that the necessary
skills are valued, promoted, and developed throughout the
organization.
Companies can develop their external-engagement skills
through a mixture of on-the-job
experience and formal training for employees. In many cases,
particularly at senior levels,
these skills are best developed in several areas of the business—
experience in marketing,
for example, equips executives to analyze and communicate
with stakeholders, experience
in operations to deliver change on the ground. Formal training
is a useful supplement,
particularly for more specialized skills, such as negotiation. For
example, BP held master
classes with leaders such as Madeleine Albright and Henry
Kissinger, people who really
know how to align diverse interests effectively. At the lower
levels of the company, training
8
helps every employee and contractor to understand the
importance of relationships with
the external world and to know the company’s policy on social
issues.

Establishing processes
Putting capabilities in place is not enough; companies must
formally incorporate external
engagement into business processes at all levels. Every
process—whether it helps a
company to set corporate strategy, design products, or plan
projects—must include
efforts to consider its impact on stakeholders and consequences
for the business. Helge
Lund describes this approach at Statoil: “Stakeholder interests,
dialogues, risks, and
opportunities are deeply integrated in every business decision
that we take. Every single
project or investment decision comes with reflections, risk
maps, and mitigation actions
around the particular topic that we’re discussing.”
When companies develop processes, clarity is essential:
conflicting policies, standards,
guidelines, and initiatives can be counterproductive, creating
overload and confusion. BHP
Billiton has worked hard to avoid all this by replacing its old
forms of guidance with what
Marius Kloppers describes as “a series of group-level
documents that clearly articulate
the minimum standards that must be in place at all company
assets, to ensure that all
managers and employees fully understand the company’s
corporate expectations.”
The risk in practice is that business lines will treat external
engagement as an afterthought
and a hoop to jump through to satisfy the head office. Each
recommendation in this
article—setting the vision, creating capabilities, and measuring

outcomes—reduces that
risk, but ultimately it is a risk that executives must take. Only
business lines have the
resources, the influence, and the knowledge to transform a
company’s relationship with
the external world.
It is worth cautioning against a common error. Some companies
publicize their internal
processes, holding them up as evidence for their responsibility
and expecting praise in
return. Those details should remain behind the curtain:
stakeholders generally care about
results and results alone.
Measuring outcomes
Results should also be the only thing executives care about. In
external engagement,
perhaps more than in any other business function, it is easy to
be diverted from a focus on
outcomes to a focus on processes or, even worse, an ill-defined
sense of “doing good.” To
retain a focus on outcomes, companies must set targets, measure
progress against them,
and link incentives to their achievement. The saying “what gets
measured gets treasured”
is as true for external engagement as for any other area of
business. Ideally, companies
should measure outcomes in terms of value added to the
business, a challenging standard—
less than 20 percent of respondents to the McKinsey survey
reported that their companies
measure the financial impact of external-affairs activities. The
difficulty arises because

9
their financial benefits are often indirect and far in the future or
can be quantified only
against an unobserved counterfactual.
In practice, businesses can observe various proxies, of varying
degrees of accuracy, for
the value external engagement adds. The closest proxy is
satisfaction among stakeholders,
weighted according to their importance to your business.
Independent panels, such as
BP’s in Tangguh, are a good way to get a fair appraisal, and
standard polling may be
useful in some circumstances. When it is not possible to
measure stakeholder satisfaction,
a company can look at specific impacts on society and the
environment. Unilever’s
Sustainable Living Plan, for example, sets about 60 targets for
seven metrics, including
total water consumption and greenhouse-gas emissions. In some
cases, such as political
engagement, companies cannot track the satisfaction of
stakeholders or the impact on
society. The only possibility is to measure activities (such as
the number of meetings with
politicians), though companies must take great care to ensure
that these activities are
not undertaken for their own sake. In general, the issue in
question will determine which
measures are possible and appropriate.
Engage radically
“I have an aversion against missionaries. I don’t like to go out

as a missionary and
preach, and then be accused of preaching for my own parish.
This is a negotiation, and
it can be a very tough one.”
—Daniel Vasella, Former chairman of Novartis
The final hallmark of integrated external engagement is a
radical approach to
communication with the external world. In our experience, and
the experience of the
executives we spoke to, companies must guard against three
pervasive errors.
First, a lot of companies start engagement too late. The natural
temptation for many busy
and cost-conscious executives is to delay acting until something
hits them. That can be
fatal. Integrated external engagement requires you to sit down
with stakeholders early
and often. The discussion should be ongoing, constantly
building goodwill, understanding,
and connections, so that companies stay informed and establish
a reserve of trust to draw
down in times of crisis. As Helge Lund puts it: “Gaining
stakeholder trust is not something
that you achieve once and for all. You can lose it very quickly.
We have to be continuously
working on this subject, even when we do not necessarily have
big issues to deal with. It
has to be developed as part of the DNA of the company.” The
McKinsey survey found
that 65 percent of executives think they should proactively
engage with governments but

10
that only 38 percent actually do so. As for regulatory bodies, 63
percent of executives
acknowledge the need to engage with them but only 33 percent
follow through.
The second error, alluded to by Daniel Vasella above, is to treat
stakeholder engagement
as a propaganda exercise. Repeatedly saying how responsibly
your company behaves
is not credible and achieves very little. Rather, engagement
should be understood as a
negotiation with intelligent and often powerful operators. As in
any negotiation, your
bargaining position determines your strategy and style. That’s
why it is so important to
know your stakeholders and their payoffs and resources in
advance. Negotiating with them
is an ongoing game, and establishing trust is therefore
important. You may be able to fool a
regulator or an NGO once, but that is liable to backfire the next
time you interact. In most
cases, if you are prepared to change your business in a
significant way, you can achieve
mutually advantageous outcomes and thus real collaboration.
That does not mean the aim is to please everyone—the third
common error. Sometimes,
a mutually advantageous solution is impossible, collaboration
will not yield your best
outcome, and a stronger negotiating strategy is to attack. For
example, in a dispute with
a regulator, if the law is on your side, there may be no point in
seeking compromise. If
activists make ridiculous demands that will win no sympathy

with the broader society, it
may be best to show them the door. As Iglo Group’s former
CEO Martin Glenn puts it: “You
don’t have to manage all of your stakeholders equally. Some
people who think they are
stakeholders might not be. You have to decide whether
Stakeholder X is truly critical to the
long-term health of your business or not.”
Selective cooperation applies not only to stakeholders but also
to competitors. When it
would be ineffective or too costly to act alone in addressing an
issue, cooperation with
them may be in the best interests of all players. For example, an
industry may sometimes
seek intelligent regulation to shut out free riders that undermine
its reputation. But in
certain cases, the first-mover advantage is considerable, and it
is best to act alone. As
Martin Glenn told us, “For big initiatives which we want to
own, we’ll take a risk, and then
we will seek advantage from that.”
From CSR to IEE
A good relationship with NGOs, citizens, and governments is
not some vague objective
that’s nice to achieve if possible. It is a key determinant of
competitiveness, and companies
need to start treating it as one. That does not mean they have to
initiate philosophical
inquiries into social responsibility and business ethics. But it
does require them to
recognize that traditional CSR fails the challenge by separating
external engagement
from everyday business. It also requires them to integrate

external engagement deeply
11
into every part of the business by defining what they contribute
to society, knowing their
stakeholders, engaging radically with them, and applying world-
class management. In
other words, it requires the same discipline that companies
around the world apply to
procurement, recruitment, strategy, and every other area of
business. Those that have
acted already are now reaping the rewards.
John Browne, former CEO of BP, is a partner of Riverstone
Holdings; Robin Nuttall is a principal in McKinsey’s London
office. Copyright © 2013 McKinsey & Company. All rights
reserved.
CREATING SH
Capitalism is under siege....Diminished
to set policies that sap economic growth….
The purpose of the corporation must be
The Big Idea
62 Harvard Business Review January–February 2011
1568 JanFeb11 Porter.indd 621568 JanFeb11 Porter.indd 62
12/3/10 3:45:23 PM12/3/10 3:45:23 PM

ARED VALUE
trust in business is causing political leaders
Business is caught in a vicious circle....
redefi ned around
How to reinvent capitalism—and
unleash a wave of innovation and
growth by Michael E. Porter and
Mark R. Kramer
January–February 2011 Harvard Business Review 63
HBR.ORG
12/3/10 3:45:35 PM12/3/10 3:45:35 PM
T success. It is not on the margin of what companies do but at
the center. We believe that it can give rise to the next major
transformation of business thinking.A growing number of
companies known for their hard-nosed approach to business—
such as GE, Google, IBM, Intel, Johnson & Johnson, Nestlé,
Uni-lever, and Wal-Mart—have already embarked on im-portant
eff orts to create shared value by reconceiv-ing the intersection
between society and corporate performance. Yet our recognition
of the transforma-tive power of shared value is still in its
genesis. Real-izing it will require leaders and managers to
develop new skills and knowledge—such as a far deeper ap-
preciation of societal needs, a greater understanding of the true
bases of company productivity, and the ability to collaborate

across profi t/nonprofi t bound-aries. And government must
learn how to regulate in ways that enable shared value rather
than work against it. Capitalism is an unparalleled vehicle for
meeting
human needs, improving efficiency, creating jobs,
and building wealth. But a narrow conception of
capitalism has prevented business from harnessing
its full potential to meet society’s broader challenges.
The opportunities have been there all along but have
been overlooked. Businesses acting as businesses,
not as charitable donors, are the most powerful force
for addressing the pressing issues we face. The mo-
ment for a new conception of capitalism is now; so-
ciety’s needs are large and growing, while customers,
employees, and a new generation of young people
are asking business to step up.
The purpose of the corporation must be rede-
fined as creating shared value, not just profit per
se. This will drive the next wave of innovation and
productivity growth in the global economy. It will
also reshape capitalism and its relationship to soci-
ety. Perhaps most important of all, learning how to
create shared value is our best chance to legitimize
business again.
Moving Beyond Trade-Off s
Business and society have been pitted against each
other for too long. That is in part because economists
have legitimized the idea that to provide societal
benefits, companies must temper their economic
success. In neoclassical thinking, a requirement for
social improvement—such as safety or hiring the
disabled—imposes a constraint on the corporation.
Adding a constraint to a fi rm that is already maximiz-

THE CAPITALIST SYSTEM is under siege. In recent years
business increasingly has been viewed as a major
cause of social, environmental, and economic prob-
lems. Companies are widely perceived to be prosper-
ing at the expense of the broader community.
Even worse, the more business has begun to
embrace corporate responsibility, the more it has
been blamed for society’s failures. The legitimacy of
business has fallen to levels not seen in recent his-
tory. This diminished trust in business leads political
leaders to set policies that undermine competitive-
ness and sap economic growth. Business is caught in
a vicious circle.
A big part of the problem lies with companies
themselves, which remain trapped in an outdated
approach to value creation that has emerged over
the past few decades. They continue to view value
creation narrowly, optimizing short-term fi nancial
performance in a bubble while missing the most
important customer needs and ignoring the broader
influences that determine their longer-term suc-
cess. How else could companies overlook the well-
being of their customers, the depletion of natural re-
sources vital to their businesses, the viability of key
suppliers, or the economic distress of the communi-
ties in which they produce and sell? How else could
companies think that simply shifting activities to
locations with ever lower wages was a sustainable
“solution” to competitive challenges? Government
and civil society have often exacerbated the prob-
lem by attempting to address social weaknesses at
the expense of business. The presumed trade-off s
between economic effi ciency and social prog ress

have been institutionalized in decades of policy
choices.
Companies must take the lead in bringing busi-
ness and society back together. The recognition is
there among sophisticated business and thought
leaders, and promising elements of a new model are
emerging. Yet we still lack an overall framework for
guiding these eff orts, and most companies remain
stuck in a “social responsibility” mind-set in which
societal issues are at the periphery, not the core.
The solution lies in the principle of shared value,
which involves creating economic value in a way
that also creates value for society by addressing its
needs and challenges. Businesses must reconnect
company success with social progress. Shared value
is not social responsibility, philanthropy, or even
sustainability, but a new way to achieve economic
THE BIG IDEA CREATING SHARED VALUE
12/3/10 3:45:47 PM12/3/10 3:45:47 PM
Idea in Brief
The concept of shared value—
which focuses on the connec-
tions between societal and
economic progress—has the
power to unleash the next
wave of global growth.

An increasing number of
companies known for their
hard-nosed approach to busi-
ness—such as Google, IBM, In-
tel, Johnson & Johnson, Nestlé,
Unilever, and Wal-Mart—have
begun to embark on important
shared value initiatives. But
our understanding of the po-
tential of shared value is just
beginning.
There are three key ways
that companies can create
shared value opportunities:
• By reconceiving products and
markets
• By redefi ning productivity in
the value chain
• By enabling local cluster
development
Every fi rm should look at
decisions and opportunities
through the lens of shared
value. This will lead to new ap-
proaches that generate greater
innovation and growth for
companies—and also greater
benefi ts for society.
ing profi ts, says the theory, will inevitably raise costs

and reduce those profi ts.
A related concept, with the same conclusion, is
the notion of externalities. Externalities arise when
fi rms create social costs that they do not have to bear,
such as pollution. Thus, society must impose taxes,
regulations, and penalties so that fi rms “internalize”
these externalities—a belief infl uencing many gov-
ernment policy decisions.
This perspective has also shaped the strategies of
fi rms themselves, which have largely excluded social
and environmental considerations from their eco-
nomic thinking. Firms have taken the broader con-
text in which they do business as a given and resisted
regulatory standards as invariably contrary to their
interests. Solving social problems has been ceded to
governments and to NGOs. Corporate responsibility
programs—a reaction to external pressure—have
emerged largely to improve fi rms’ reputations and
are treated as a necessary expense. Anything more
is seen by many as an irresponsible use of sharehold-
ers’ money. Governments, for their part, have often
regulated in a way that makes shared value more dif-
fi cult to achieve. Implicitly, each side has assumed
that the other is an obstacle to pursuing its goals and
acted accordingly.
The concept of shared value, in contrast, rec-
ognizes that societal needs, not just conventional
economic needs, defi ne markets. It also recognizes
that social harms or weaknesses frequently cre-
ate internal costs for fi rms—such as wasted energy
or raw materials, costly accidents, and the need
for remedial training to compensate for inadequa-

cies in education. And addressing societal harms
and constraints does not necessarily raise costs for
fi rms, because they can innovate through using new
technologies, operating methods, and management
approaches—and as a result, increase their produc-
tivity and expand their markets.
Shared value, then, is not about personal values.
Nor is it about “sharing” the value already created
by firms—a redistribution approach. Instead, it is
about expanding the total pool of economic and
social value. A good example of this difference in
perspective is the fair trade movement in purchas-
ing. Fair trade aims to increase the proportion of
revenue that goes to poor farmers by paying them
higher prices for the same crops. Though this may
be a noble sentiment, fair trade is mostly about
redistribution rather than expanding the overall
amount of value created. A shared value perspective,
instead, focuses on improving growing techniques
and strengthening the local cluster of supporting
suppliers and other institutions in order to increase
farmers’ effi ciency, yields, product quality, and sus-
tainability. This leads to a bigger pie of revenue and
profi ts that benefi ts both farmers and the companies
that buy from them. Early studies of cocoa farmers in
the Côte d’Ivoire, for instance, suggest that while fair
trade can increase farmers’ incomes by 10% to 20%,
shared value investments can raise their incomes by
more than 300%. Initial investment and time may be
required to implement new procurement practices
and develop the supporting cluster, but the return
will be greater economic value and broader strategic
benefi ts for all participants.
Societal needs, not just conventional

economic needs, defi ne markets, and social
harms can create internal costs for fi rms.
IL
LU
ST
R
AT
IO
N
: L
O
R
EN
ZO
P
ET
R
A
N
TO
N
I
HBR.ORG

12/3/10 3:45:53 PM12/3/10 3:45:53 PM
The Roots of Shared Value
At a very basic level, the competitiveness of a com-
pany and the health of the communities around it
are closely intertwined. A business needs a success-
ful community, not only to create demand for its
products but also to provide critical public assets
and a supportive environment. A community needs
successful businesses to provide jobs and wealth cre-
ation opportunities for its citizens. This interdepen-
dence means that public policies that undermine the
productivity and competitiveness of businesses are
self-defeating, especially in a global economy where
facilities and jobs can easily move elsewhere. NGOs
and governments have not always appreciated this
connection.
In the old, narrow view of capitalism, business
contributes to society by making a profi t, which sup-
ports employment, wages, purchases, investments,
and taxes. Conducting business as usual is suffi cient
social benefi t. A fi rm is largely a self-contained entity,
and social or community issues fall outside its proper
scope. (This is the argument advanced persuasively
by Milton Friedman in his critique of the whole no-
tion of corporate social responsibility.)
This perspective has permeated management
thinking for the past two decades. Firms focused on
enticing consumers to buy more and more of their
products. Facing growing competition and shorter-

term performance pressures from shareholders,
managers resorted to waves of restructuring, per-
sonnel reductions, and relocation to lower-cost
regions, while leveraging balance sheets to return
capital to investors. The results were often com-
moditization, price competition, little true innova-
tion, slow organic growth, and no clear competitive
advantage.
In this kind of competition, the communities
in which companies operate perceive little benefi t
even as profi ts rise. Instead, they perceive that prof-
its come at their expense, an impression that has
become even stronger in the current economic re-
covery, in which rising earnings have done little to
off set high unemployment, local business distress,
and severe pressures on community services.
It was not always this way. The best companies
once took on a broad range of roles in meeting the
needs of workers, communities, and supporting
businesses. As other social institutions appeared on
the scene, however, these roles fell away or were del-
egated. Shortening investor time horizons began to
narrow thinking about appropriate investments. As
the vertically integrated fi rm gave way to greater reli-
ance on outside vendors, outsourcing and off shoring
weakened the connection between fi rms and their
communities. As fi rms moved disparate activities to
more and more locations, they often lost touch with
any location. Indeed, many companies no longer
recognize a home—but see themselves as “global”
companies.
These transformations drove major progress
in economic efficiency. However, something pro-

foundly important was lost in the process, as more-
fundamental opportunities for value creation were
missed. The scope of strategic thinking contracted.
Strategy theory holds that to be successful, a
company must create a distinctive value proposi-
tion that meets the needs of a chosen set of custom-
ers. The fi rm gains competitive advantage from how
it confi gures the value chain, or the set of activities
involved in creating, producing, selling, delivering,
and supporting its products or services. For decades
businesspeople have studied positioning and the
best ways to design activities and integrate them.
However, companies have overlooked opportuni-
ties to meet fundamental societal needs and misun-
WWHAT IS “SHARED VALUE”?The concept of shared value
can be defi ned as policies and operat-ing practices that enhance
the competitiveness of a company while simultaneously
advancing the economic and social conditions in the
communities in which it operates. Shared value creation focuses
on identifying and expanding the connections between societal
and economic progress.The concept rests on the premise that
both economic and social progress must be addressed using
value principles. Value is defi ned as benefi ts relative to costs,
not just benefi ts alone. Value creation is an idea that has long
been recognized in business, where profi t is revenues earned
from customers minus the costs incurred. How-
ever, businesses have rarely approached societal issues from a
value
perspective but have treated them as peripheral matters. This
has
obscured the connections between economic and social
concerns.
In the social sector, thinking in value terms is even less

common.
Social organizations and government entities often see success
solely
in terms of the benefi ts achieved or the money expended. As
govern-
ments and NGOs begin to think more in value terms, their
interest in
collaborating with business will inevitably grow.
12/3/10 3:45:58 PM12/3/10 3:45:58 PM
derstood how societal harms and weaknesses aff ect
value chains. Our fi eld of vision has simply been too
narrow.
In understanding the business environment,
managers have focused most of their attention on
the industry, or the particular business in which the
fi rm competes. This is because industry structure
has a decisive impact on a fi rm’s profi tability. What
has been missed, however, is the profound effect
that location can have on productivity and innova-
tion. Companies have failed to grasp the importance
of the broader business environment surrounding
their major operations.
How Shared Value Is Created
Companies can create economic value by creating
societal value. There are three distinct ways to do

this: by reconceiving products and markets, redefi n-
ing productivity in the value chain, and building sup-
portive industry clusters at the company’s locations.
Each of these is part of the virtuous circle of shared
value; improving value in one area gives rise to op-
portunities in the others.
The concept of shared value resets the bound-
aries of capitalism. By better connecting companies’
success with societal improvement, it opens up
many ways to serve new needs, gain effi ciency, cre-
ate diff erentiation, and expand markets.
The ability to create shared value applies equally
to advanced economies and developing countries,
though the specifi c opportunities will diff er. The op-
portunities will also diff er markedly across industries
and companies—but every company has them. And
their range and scope is far broader than has been
recognized. [The idea of shared value was initially
explored in a December 2006 HBR article by Michael
E. Porter and Mark R. Kramer, “Strategy and Society:
The Link Between Competitive Advantage and Corpo-
rate Social Responsibility.”]
Reconceiving Products and Markets
Society’s needs are huge—health, better housing, im-
proved nutrition, help for the aging, greater fi nancial
security, less environmental damage. Arguably, they
are the greatest unmet needs in the global economy.
In business we have spent decades learning how to
parse and manufacture demand while missing the
most important demand of all. Too many companies
have lost sight of that most basic of questions: Is our
product good for our customers? Or for our custom-
ers’ customers?

In advanced economies, demand for products
and services that meet societal needs is rapidly grow-
ing. Food companies that traditionally concentrated
on taste and quantity to drive more and more con-
sumption are refocusing on the fundamental need
for better nutrition. Intel and IBM are both devising
ways to help utilities harness digital intelligence in
order to economize on power usage. Wells Fargo
has developed a line of products and tools that help
customers budget, manage credit, and pay down
debt. Sales of GE’s Ecomagination products reached
$18 billion in 2009—the size of a Fortune 150 com-
pany. GE now predicts that revenues of Ecomagina-
tion products will grow at twice the rate of total com-
pany revenues over the next fi ve years.
In these and many other ways, whole new av-
enues for innovation open up, and shared value is
created. Society’s gains are even greater, because
businesses will often be far more eff ective than gov-
ernments and nonprofi ts are at marketing that mo-
tivates customers to embrace products and services
that create societal benefi ts, like healthier food or
environmentally friendly products.
BBLURRING THEPROFIT/NONPROFIT BOUNDARYThe
concept of shared value blurs the line between for-profi t and
nonprofi t organizations. New kinds of hybrid enterprises are
rapidly appearing. For example, WaterHealth International, a
fast-growing for-profi t, uses innovative water purifi cation
techniques to distribute clean water at minimal cost to more
than one million people in rural India, Ghana, and the
Philippines. Its investors include not only the socially focused
Acumen Fund and the International Finance Corporation of the
World Bank but also Dow Chemical’s venture fund. Revolution

Foods, a four-year-old venture-capital-backed U.S. start-up,
provides 60,000
fresh, healthful, and nutritious meals to students daily—and
does so at
a higher gross margin than traditional competitors. Waste
Concern, a
hybrid profi t/nonprofi t enterprise started in Bangladesh 15
years ago,
has built the capacity to convert 700 tons of trash, collected
daily from
neighborhood slums, into organic fertilizer, thereby increasing
crop
yields and reducing CO2 emissions. Seeded with capital from
the Lions
Club and the United Nations Development Programme, the
company
improves health conditions while earning a substantial gross
margin
through fertilizer sales and carbon credits.
The blurring of the boundary between successful for-profi ts
and non-
profi ts is one of the strong signs that creating shared value is
possible.
HBR.ORG
12/3/10 3:46:05 PM12/3/10 3:46:05 PM
Equal or greater opportunities arise from serving
disadvantaged communities and developing coun-

tries. Though societal needs are even more pressing
there, these communities have not been recognized
as viable markets. Today attention is riveted on In-
dia, China, and increasingly, Brazil, which off er fi rms
the prospect of reaching billions of new customers
at the bottom of the pyramid—a notion persuasively
articulated by C.K. Prahalad. Yet these countries
have always had huge needs, as do many develop-
ing countries.
Similar opportunities await in nontraditional
communities in advanced countries. We have
learned, for example, that poor urban areas are
America’s most underserved market; their substan-
tial concentrated purchasing power has often been
overlooked. (See the research of the Initiative for a
Competitive Inner City, at icic.org.)
The societal benefits of providing appropriate
products to lower-income and disadvantaged con-
sumers can be profound, while the profi ts for com-
panies can be substantial. For example, low-priced
cell phones that provide mobile banking services
are helping the poor save money securely and trans-
forming the ability of small farmers to produce and
market their crops. In Kenya, Vodafone’s M-PESA
mobile banking service signed up 10 million cus-
tomers in three years; the funds it handles now rep-
resent 11% of that country’s GDP. In India, Thomson
Reuters has developed a promising monthly service
for farmers who earn an average of $2,000 a year. For
a fee of $5 a quarter, it provides weather and crop-
pricing information and agricultural advice. The
service reaches an estimated 2 million farmers, and
early research indicates that it has helped increase

the incomes of more than 60% of them—in some
cases even tripling incomes. As capitalism begins to
work in poorer communities, new opportunities for
economic development and social progress increase
exponentially.
For a company, the starting point for creating
this kind of shared value is to identify all the soci-
etal needs, benefi ts, and harms that are or could be
embodied in the fi rm’s products. The opportunities
are not static; they change constantly as technology
evolves, economies develop, and societal priorities
shift. An ongoing exploration of societal needs will
lead companies to discover new opportunities for
diff erentiation and repositioning in traditional mar-
kets, and to recognize the potential of new markets
they previously overlooked.
Meeting needs in underserved markets often
requires redesigned products or diff erent distribu-
tion methods. These requirements can trigger fun-
damental innovations that also have application in
traditional markets. Microfi nance, for example, was
invented to serve unmet fi nancing needs in develop-
ing countries. Now it is growing rapidly in the United
States, where it is fi lling an important gap that was
unrecognized.
Redefi ning Productivity
In the Value Chain
A company’s value chain inevitably affects—and
is affected by—numerous societal issues, such as
natural resource and water use, health and safety,
working conditions, and equal treatment in the
workplace. Opportunities to create shared value
arise because societal problems can create economic

costs in the firm’s value chain. Many so-called ex-
ternalities actually infl ict internal costs on the fi rm,
even in the absence of regulation or resource taxes.
Excess packaging of products and greenhouse gases
There are numerous ways in which addressing societal concerns
can yield pro-
ductivity benefi ts to a fi rm. Consider, for example, what
happens when a fi rm
invests in a wellness program. Society benefi ts because
employees and their
families become healthier, and the fi rm minimizes employee
absences and lost
productivity. The graphic below depicts some areas where the
connections are
strongest.
THE CONNECTION BETWEEN
COMPETITIVE ADVANTAGE AND SOCIAL ISSUES
WATER
USE
EMPLOYEE
SKILLS
ENVIRONMENTAL
IMPACT
COMPANY
PRODUCTIVITY
WORKER
SAFETY
SUPPLIER

ACCESS AND
VIABILITY
EMPLOYEE
HEALTH
ENERGY
USE
12/3/10 3:46:11 PM12/3/10 3:46:11 PM
are not just costly to the environment but costly to
the business. Wal-Mart, for example, was able to
address both issues by reducing its packaging and
rerouting its trucks to cut 100 million miles from its
delivery routes in 2009, saving $200 million even as
it shipped more products. Innovation in disposing
of plastic used in stores has saved millions in lower
disposal costs to landfi lls.
The new thinking reveals that the congruence
between societal progress and productivity in the
value chain is far greater than traditionally believed
(see the exhibit “The Connection Between Competi-
tive Advantage and Social Issues”). The synergy in-
creases when firms approach societal issues from
a shared value perspective and invent new ways
of operating to address them. So far, however, few
companies have reaped the full productivity benefi ts

in areas such as health, safety, environmental perfor-
mance, and employee retention and capability.
But there are unmistakable signs of change. Ef-
forts to minimize pollution were once thought to
inevitably increase business costs—and to occur
only because of regulation and taxes. Today there
is a growing consensus that major improvements in
environmental performance can often be achieved
with better technology at nominal incremental cost
and can even yield net cost savings through en-
hanced resource utilization, process effi ciency, and
quality.
In each of the areas in the exhibit, a deeper under-
standing of productivity and a growing awareness of
the fallacy of short-term cost reductions (which of-
ten actually lower productivity or make it unsustain-
able) are giving rise to new approaches. The follow-
ing are some of the most important ways in which
shared value thinking is transforming the value
chain, which are not independent but often mutu-
ally reinforcing. Eff orts in these and other areas are
still works in process, whose implications will be felt
for years to come.
Energy use and logistics. The use of energy
throughout the value chain is being reexamined,
whether it be in processes, transportation, buildings,
supply chains, distribution channels, or support ser-
vices. Triggered by energy price spikes and a new
awareness of opportunities for energy efficiency,
this reexamination was under way even before car-
bon emissions became a global focus. The result has
been striking improvements in energy utilization

through better technology, recycling, cogeneration,
and numerous other practices—all of which create
shared value.
We are learning that shipping is expensive, not
just because of energy costs and emissions but be-
cause it adds time, complexity, inventory costs, and
management costs. Logistical systems are begin-
ning to be redesigned to reduce shipping distances,
streamline handling, improve vehicle routing, and
the like. All of these steps create shared value. The
British retailer Marks & Spencer’s ambitious over-
haul of its supply chain, for example, which involves
steps as simple as stopping the purchase of supplies
from one hemisphere to ship to another, is expected
to save the retailer £175 million annually by fiscal
2016, while hugely reducing carbon emissions. In
the process of reexamining logistics, thinking about
outsourcing and location will also be revised (as we
will discuss below).
Resource use. Heightened environmental
awareness and advances in technology are catalyz-
ing new approaches in areas such as utilization
of water, raw materials, and packaging, as well as
expanding recycling and reuse. The opportunities
apply to all resources, not just those that have been
identifi ed by environmentalists. Better resource uti -
lization—enabled by improving technology—will
permeate all parts of the value chain and will spread
to suppliers and channels. Landfills will fill more
slowly.
For example, Coca-Cola has already reduced its
worldwide water consumption by 9% from a 2004
baseline—nearly halfway to its goal of a 20% reduc-

tion by 2012. Dow Chemical managed to reduce
consumption of fresh water at its largest production
site by one billion gallons—enough water to supply
nearly 40,000 people in the U.S. for a year—result-
ing in savings of $4 million. The demand for water-
saving technology has allowed India’s Jain Irrigation,
By reducing its packaging and cutting 100 million miles
from the delivery routes of its trucks, Wal-Mart lowered
carbon emissions and saved $200 million in costs.
HBR.ORG
12/3/10 3:46:17 PM12/3/10 3:46:17 PM
a leading global manufacturer of complete drip irri-
gation systems for water conservation, to achieve a
41% compound annual growth rate in revenue over
the past fi ve years.
Procurement. The traditional playbook calls for
companies to commoditize and exert maximum bar-
gaining power on suppliers to drive down prices—
even when purchasing from small businesses or
subsistence-level farmers. More recently, fi rms have
been rapidly outsourcing to suppliers in lower-wage
locations.
Today some companies are beginning to under-
stand that marginalized suppliers cannot remain
productive or sustain, much less improve, their

quality. By increasing access to inputs, sharing tech-
nology, and providing financing, companies can
improve supplier quality and productivity while
ensuring access to growing volume. Improving pro-
ductivity will often trump lower prices. As suppliers
get stronger, their environmental impact often falls
dramatically, which further improves their effi ciency.
Shared value is created.
A good example of such new procurement think-
ing can be found at Nespresso, one of Nestlé’s fastest-
growing divisions, which has enjoyed annual growth
of 30% since 2000. Nespresso combines a sophisti-
cated espresso machine with single-cup aluminum
capsules containing ground coff ees from around the
world. Off ering quality and convenience, Nespresso
has expanded the market for premium coff ee.
Obtaining a reliable supply of specialized coff ees
is extremely challenging, however. Most coff ees are
grown by small farmers in impoverished rural areas
of Africa and Latin America, who are trapped in a
cycle of low productivity, poor quality, and environ-
mental degradation that limits production volume.
To address these issues, Nestlé redesigned procure-
ment. It worked intensively with its growers, pro-
viding advice on farming practices, guaranteeing
bank loans, and helping secure inputs such as plant
stock, pesticides, and fertilizers. Nestlé established
local facilities to measure the quality of the coff ee
at the point of purchase, which allowed it to pay a
premium for better beans directly to the growers
and thus improve their incentives. Greater yield per
hectare and higher production quality increased
growers’ incomes, and the environmental impact of
farms shrank. Meanwhile, Nestlé’s reliable supply

of good coff ee grew signifi cantly. Shared value was
created.
Embedded in the Nestlé example is a far broader
insight, which is the advantage of buying from ca-
pable local suppliers. Outsourcing to other locations
and countries creates transaction costs and ineffi-
ciencies that can off set lower wage and input costs.
Capable local suppliers help fi rms avoid these costs
and can reduce cycle time, increase fl exibility, foster
faster learning, and enable innovation. Buying lo-
cal includes not only local companies but also local
units of national or international companies. When
fi rms buy locally, their suppliers can get stronger, in-
crease their profi ts, hire more people, and pay better
wages—all of which will benefi t other businesses in
the community. Shared value is created.
Distribution. Companies are beginning to re-
examine distribution practices from a shared value
perspective. As iTunes, Kindle, and Google Scholar
(which offers texts of scholarly literature online)
demonstrate, profitable new distribution models
can also dramatically reduce paper and plastic usage.
Similarly, microfi nance has created a cost-effi cient
new model of distributing fi nancial services to small
businesses.
Opportunities for new distribution models can
be even greater in nontraditional markets. For ex-
ample, Hindustan Unilever is creating a new direct-
to-home distribution system, run by underprivi-
leged female entrepreneurs, in Indian villages of
fewer than 2,000 people. Unilever provides micro-
credit and training and now has more than 45,000
entrepreneurs covering some 100,000 villages

TBusinesses are not the only players in fi nding profi table
solutions to social problems. A whole generation of social
entrepreneurs is pioneering new product concepts that meet
social needs using viable business models. Because they are not
locked into narrow traditional business thinking, social
entrepreneurs are often well ahead of established corporations
in discovering these opportuni-ties. Social enterprises that
create shared value can scale up far more rapidly than purely
social programs, which often suff er from
an inability to grow and become self-sustaining.
Real social entrepreneurship should be measured by its abil-
ity to create shared value, not just social benefi t.
THE ROLE OF SOCIAL
ENTREPRENEURS
12/3/10 3:46:24 PM12/3/10 3:46:24 PM
across 15 Indian states. Project Shakti, as this distri-
bution system is called, benefi ts communities not
only by giving women skills that often double their
household income but also by reducing the spread
of communicable diseases through increased access
to hygiene products. This is a good example of how
the unique ability of business to market to hard-
to-reach consumers can benefi t society by getting
life-altering products into the hands of people that

need them. Project Shakti now accounts for 5% of
Unilever’s total revenues in India and has extended
the company’s reach into rural areas and built its
brand in media-dark regions, creating major eco-
nomic value for the company.
Employee productivity. The focus on holding
down wage levels, reducing benefits, and offshor-
ing is beginning to give way to an awareness of the
positive eff ects that a living wage, safety, wellness,
training, and opportunities for advancement for
employees have on productivity. Many companies,
for example, traditionally sought to minimize the
cost of “expensive” employee health care coverage
or even eliminate health coverage altogether. Today
leading companies have learned that because of lost
workdays and diminished employee productivity,
poor health costs them more than health benefits
do. Take Johnson & Johnson. By helping employees
stop smoking (a two-thirds reduction in the past
15 years) and implementing numerous other well-
ness programs, the company has saved $250 mil-
lion on health care costs, a return of $2.71 for every
dollar spent on wellness from 2002 to 2008. More-
over, Johnson & Johnson has benefi ted from a more
present and productive workforce. If labor unions
focused more on shared value, too, these kinds of
employee approaches would spread even faster.
Location. Business thinking has embraced the
myth that location no longer matters, because logis-
tics are inexpensive, information fl ows rapidly, and
markets are global. The cheaper the location, then,
the better. Concern about the local communities in
which a company operates has faded.

That oversimplifi ed thinking is now being chal-
lenged, partly by the rising costs of energy and car-
bon emissions but also by a greater recognition of
the productivity cost of highly dispersed production
systems and the hidden costs of distant procurement
discussed earlier. Wal-Mart, for example, is increas-
ingly sourcing produce for its food sections from lo-
cal farms near its warehouses. It has discovered that
the savings on transportation costs and the ability
to restock in smaller quantities more than off set the
lower prices of industrial farms farther away. Nestlé
is establishing smaller plants closer to its markets
and stepping up efforts to maximize the use of lo-
cally available materials.
The calculus of locating activities in developing
countries is also changing. Olam International, a
leading cashew producer, traditionally shipped its
nuts from Africa to Asia for processing at facilities
staff ed by productive Asian workers. But by opening
local processing plants and training workers in Tan-
zania, Mozambique, Nigeria, and Côte d’Ivoire, Olam
has cut processing and shipping costs by as much as
25%—not to mention, greatly reduced carbon emis-
sions. In making this move, Olam also built preferred
relationships with local farmers. And it has provided
direct employment to 17,000 people—95% of whom
are women—and indirect employment to an equal
number of people, in rural areas where jobs other-
wise were not available.
These trends may well lead companies to remake
their value chains by moving some activities closer
to home and having fewer major production loca-
tions. Until now, many companies have thought that

being global meant moving production to locations
with the lowest labor costs and designing their sup-
ply chains to achieve the most immediate impact on
expenses. In reality, the strongest international com-
petitors will often be those that can establish deeper
roots in important communities. Companies that
can embrace this new locational thinking will create
shared value.
AS THESE examples illustrate, reimagining value
chains from the perspective of shared value will of-
fer signifi cant new ways to innovate and unlock new
economic value that most businesses have missed.
By investing in employee wellness programs,
Johnson & Johnson has saved $250 million on
health care costs.
HBR.ORG
12/3/10 3:46:31 PM12/3/10 3:46:31 PM
Creating Shared Value: Implications for Government and
Governments and NGOs will be most
eff ective if they think in value terms—
considering benefi ts relative to costs—and
focus on the results achieved rather than
the funds and eff ort expended. Activists
have tended to approach social improve-
ment from an ideological or absolutist

perspective, as if social benefi ts should
be pursued at any cost. Governments
and NGOs often assume that trade-off s
between economic and social benefi ts are
inevitable, exacerbating these trade-off s
through their approaches. For example,
much environmental regulation still takes
the form of command-and-control man-
dates and enforcement actions designed
to embarrass and punish companies.
Regulators would accomplish much more
by focusing on measuring environmental
performance and introducing standards,
phase-in periods, and support for tech-
nology that would promote innovation,
improve the environment, and increase
competitiveness simultaneously.
The principle of shared value cre-
ation cuts across the traditional divide
between the responsibilities of busi-
ness and those of government or civil
society. From society’s perspective, it
does not matter what types of organiza-
tions created the value. What matters
is that benefi ts are delivered by those
organizations—or combinations of
organizations—that are best positioned
to achieve the most impact for the least
cost. Finding ways to boost productivity
is equally valuable whether in the service
of commercial or societal objectives. In
short, the principle of value creation
should guide the use of resources across

all areas of societal concern.
Fortunately, a new type of NGO has
emerged that understands the importance
of productivity and value creation. Such
organizations have often had a remark-
able impact. One example is TechnoServe,
which has partnered with both regional
and global corporations to promote the
development of competitive agricultural
clusters in more than 30 countries. Root
Capital accomplishes a similar objective
by providing fi nancing to farmers and
businesses that are too large for micro-
fi nance but too small for normal bank fi -
nancing. Since 2000, Root Capital has lent
more than $200 million to 282 businesses,
training, transportation services, and related indus-
tries also boost productivity. Without a supporting
cluster, conversely, productivity suff ers.
Deficiencies in the framework conditions sur-
rounding the cluster also create internal costs for
fi rms. Poor public education imposes productivity
and remedial-training costs. Poor transportation in-
frastructure drives up the costs of logistics. Gender
or racial discrimination reduces the pool of capable
employees. Poverty limits the demand for products
and leads to environmental degradation, unhealthy
workers, and high security costs. As companies have
increasingly become disconnected from their com-
munities, however, their infl uence in solving these
problems has waned even as their costs have grown.
Firms create shared value by building clusters

to improve company productivity while address-
ing gaps or failures in the framework conditions
surrounding the cluster. Efforts to develop or at-
tract capable suppliers, for example, enable the pro-
curement benefi ts we discussed earlier. A focus on
clusters and location has been all but absent in man-
agement thinking. Cluster thinking has also been
Enabling Local Cluster Development
No company is self-contained. The success of every
company is aff ected by the supporting companies
and infrastructure around it. Productivity and inno-
vation are strongly infl uenced by “clusters,” or geo-
graphic concentrations of fi rms, related businesses,
suppliers, service providers, and logistical infra-
structure in a particular fi eld—such as IT in Silicon
Valley, cut fl owers in Kenya, and diamond cutting in
Surat, India.
Clusters include not only businesses but institu-
tions such as academic programs, trade associations,
and standards organizations. They also draw on the
broader public assets in the surrounding community,
such as schools and universities, clean water, fair-
competition laws, quality standards, and market
transparency.
Clusters are prominent in all successful and
growing regional economies and play a crucial role
in driving productivity, innovation, and competi-
tiveness. Capable local suppliers foster greater logis-
tical effi ciency and ease of collaboration, as we have
discussed. Stronger local capabilities in such areas as
While our focus here is primarily on companies,
the principles of shared value apply equally to

governments and nonprofi t organizations.
12/3/10 3:46:38 PM12/3/10 3:46:38 PM
IL
LU
ST
R
AT
IO
N
/P
H
O
TO
G
R
A
PH
Y:
N

A
M
E
Civil Society
improve framework conditions for the cluster spill
over to other participants and the local economy.
Workforce development initiatives, for example,
increase the supply of skilled employees for many
other fi rms as well.
At Nespresso, Nestlé also worked to build clus-
ters, which made its new procurement practices far
more eff ective. It set out to build agricultural, tech-
nical, fi nancial, and logistical fi rms and capabilities
in each coff ee region, to further support effi ciency
and high-quality local production. Nestlé led ef-
forts to increase access to essential agricultural in-
puts such as plant stock, fertilizers, and irrigation
equipment; strengthen regional farmer co-ops by
helping them fi nance shared wet-milling facilities
for producing higher-quality beans; and support an
extension program to advise all farmers on growing
techniques. It also worked in partnership with the
Rainforest Alliance, a leading international NGO, to
teach farmers more-sustainable practices that make
production volumes more reliable.
In the process, Nestlé’s produc-
tivity improved.
through which it has reached 400,000
farmers and artisans. It has fi nanced
the cultivation of 1.4 million acres of
organic agriculture in Latin America and

Africa. Root Capital regularly works with
corporations, utilizing future purchase
orders as collateral for its loans to farm-
ers and helping to strengthen corporate
supply chains and improve the quality of
purchased inputs.
Some private foundations have begun
to see the power of working with busi-
nesses to create shared value. The Bill &
Melinda Gates Foundation, for example,
has formed partnerships with leading
global corporations to foster agricultural
clusters in developing countries. The
foundation carefully focuses on commodi-
ties where climate and soil conditions
give a particular region a true competi-
tive advantage. The partnerships bring in
NGOs like TechnoServe and Root Capital,
as well as government offi cials, to work
on precompetitive issues that improve the
cluster and upgrade the value chain for
all participants. This approach recognizes
that helping small farmers increase their
yields will not create any lasting benefi ts
unless there are ready buyers for their
crops, other enterprises that can process
the crops once they are harvested, and
a local cluster that includes effi cient
logistical infrastructure, input availability,
and the like. The active engagement of
corporations is essential to mobilizing
these elements.
Forward-thinking foundations can also

serve as honest brokers and allay fears
by mitigating power imbalances between
small local enterprises, NGOs, govern-
ments, and companies. Such eff orts will
require a new assumption that shared
value can come only as a result of eff ec-
tive collaboration among all parties.
missing in many economic development initiatives,
which have failed because they involved isolated in-
terventions and overlooked critical complementary
investments.
A key aspect of cluster building in developing and
developed countries alike is the formation of open
and transparent markets. In ineffi cient or monopo-
lized markets where workers are exploited, where
suppliers do not receive fair prices, and where price
transparency is lacking, productivity suffers. En-
abling fair and open markets, which is often best
done in conjunction with partners, can allow a com-
pany to secure reliable supplies and give suppliers
better incentives for quality and effi ciency while also
substantially improving the incomes and purchasing
power of local citizens. A positive cycle of economic
and social development results.
When a fi rm builds clusters in its key locations, it
also amplifi es the connection between its success
and its communities’ success. A fi rm’s growth has
multiplier eff ects, as jobs are created in supporting
industries, new companies are seeded, and demand
for ancillary services rises. A company’s eff orts to

HBR.ORG
12/3/10 3:46:44 PM12/3/10 3:46:44 PM
Regulation is necessary for well-
functioning markets, something that
became abundantly clear during the
recent fi nancial crisis. However, the ways
in which regulations are designed and
implemented determine whether they
benefi t society or work against it.
Regulations that enhance shared value
set goals and stimulate innovation. They
highlight a societal objective and create
a level playing fi eld to
encourage com panies
to invest in shared
value rather than
maximize short-term
profi t. Such regula-
tions have a number of
characteristics:
First, they set clear and
measurable social goals,
whether they involve energy
use, health matters, or
safety. Where appropriate,
they set prices for re-
sources (such as water) that
refl ect true costs. Second,

they set performance standards but
do not prescribe the methods to achieve
them—those are left to companies. Third,
they defi ne phase-in periods for meeting
standards, which refl ect the investment or
new-product cycle in the industry. Phase-
in periods give companies time to develop
and introduce new products and pro-
cesses in a way consistent with the eco-
nomics of their business. Fourth, they
put in place universal measure-
ment and performance-
reporting systems, with
government investing
in infrastructure for col-
lecting reliable benchmark-
ing data (such as nutritional
defi ciencies in each commu-
nity). This motivates and en-
ables continual improvement
beyond current targets. Finally,
appropriate regulations require
effi cient and timely reporting
of results, which can then be
audited by the government as
necessary, rather than impose
detailed and expensive compliance pro-
cesses on everyone.
Regulation that discourages shared
value looks very diff erent. It forces

compliance with particular practices,
rather than focusing on measurable social
improvement. It mandates a particular
approach to meeting a standard—block-
ing innovation and almost always infl icting
cost on companies. When governments
fall into the trap of this sort of regulation,
they undermine the very progress that
they seek while triggering fi erce resistance
from business that slows progress further
and blocks shared value that would im-
prove competitiveness.
To be sure, companies locked into
the old mind-set will resist even well-
constructed regulation. As shared value
principles become more widely accepted,
however, business and government will be-
come more aligned on regulation in many
areas. Companies will come to understand
that the right kind of regulation can actu-
ally foster economic value creation.
Finally, regulation will be needed to
limit the pursuit of exploitative, unfair, or
deceptive practices in which companies
benefi t at the expense of society. Strict
antitrust policy, for example, is essential
to ensure that the benefi ts of company
success fl ow to customers, suppliers, and
workers.�
A good example of a company working to im-
prove framework conditions in its cluster is Yara, the
world’s largest mineral fertilizer company. Yara real-
ized that the lack of logistical infrastructure in many

parts of Africa was preventing farmers from gaining
effi cient access to fertilizers and other essential ag-
ricultural inputs, and from transporting their crops
effi ciently to market. Yara is tackling this problem
through a $60 million investment in a program to
improve ports and roads, which is designed to cre-
ate agricultural growth corridors in Mozambique
and Tanzania. The company is working on this ini-
tiative with local governments and support from the
Norwegian government. In Mozambique alone, the
corridor is expected to benefi t more than 200,000
small farmers and create 350,000 new jobs. The im-
The right kind of government regulation can
encourage companies to pursue shared value; the
wrong kind works against it and even makes trade-
off s between economic and social goals inevitable.
Government Regulation and Shared Value
provements will help Yara grow its business but will
support the whole agricultural cluster, creating huge
multiplier eff ects.
The benefits of cluster building apply not only
in emerging economies but also in advanced coun-
tries. North Carolina’s Research Triangle is a notable
example of public and private collaboration that has
created shared value by developing clusters in such
areas as information technology and life sciences.
That region, which has benefi ted from continued in-
vestment from both the private sector and local gov-
ernment, has experienced huge growth in employ-
ment, incomes, and company performance, and has
fared better than most during the downturn.

To support cluster development in the communi-
ties in which they operate, companies need to iden-
12/3/10 3:46:51 PM12/3/10 3:46:51 PM
tify gaps and defi ciencies in areas such as logistics,
suppliers, distribution channels, training, market
organization, and educational institutions. Then the
task is to focus on the weaknesses that represent the
greatest constraints to the company’s own produc-
tivity and growth, and distinguish those areas that
the company is best equipped to infl uence directly
from those in which collaboration is more cost-
eff ective. Here is where the shared value opportuni-
ties will be greatest. Initiatives that address cluster
weaknesses that constrain companies will be much
more eff ective than community-focused corporate
social responsibility programs, which often have
limited impact because they take on too many areas
without focusing on value.
But eff orts to enhance infrastructure and institu-
tions in a region often require collective action, as
the Nestlé, Yara, and Research Triangle examples
show. Companies should try to enlist partners to
share the cost, win support, and assemble the right
skills. The most successful cluster development pro-
grams are ones that involve collaboration within the

private sector, as well as trade associations, govern-
ment agencies, and NGOs.
Creating Shared Value in Practice
Not all profi t is equal—an idea that has been lost in
the narrow, short-term focus of financial markets
and in much management thinking. Profi ts involv-
ing a social purpose represent a higher form of
capitalism—one that will enable society to advance
more rapidly while allowing companies to grow even
more. The result is a positive cycle of company and
community prosperity, which leads to profi ts that
endure.
Creating shared value presumes compliance with
the law and ethical standards, as well as mitigating
any harm caused by the business, but goes far be-
yond that. The opportunity to create economic value
through creating societal value will be one of the
most powerful forces driving growth in the global
economy. This thinking represents a new way of
understanding customers, productivity, and the ex-
ternal infl uences on corporate success. It highlights
the immense human needs to be met, the large new
markets to serve, and the internal costs of social and
community defi cits—as well as the competitive ad-
vantages available from addressing them. Until re-
cently, companies have simply not approached their
businesses this way.
Creating shared value will be more eff ective and
far more sustainable than the majority of today’s
corporate eff orts in the social arena. Companies will
make real strides on the environment, for example,
when they treat it as a productivity driver rather than

a feel-good response to external pressure. Or consider
access to housing. A shared value approach would
have led financial services companies to create in-
novative products that prudently increased access to
home ownership. This was recognized by the Mexi-
can construction company Urbi, which pioneered a
mortgage-fi nancing “rent-to-own” plan. Major U.S.
banks, in contrast, promoted unsustainable fi nancing
vehicles that turned out to be socially and economi-
cally devastating, while claiming they were socially
responsible because they had charitable contribution
programs.
Inevitably, the most fertile opportunities for cre-
ating shared value will be closely related to a com-
pany’s particular business, and in areas most impor-
tant to the business. Here a company can benefi t the
most economically and hence sustain its commit-
ment over time. Here is also where a company brings
the most resources to bear, and where its scale and
market presence equip it to have a meaningful im-
pact on a societal problem.
Ironically, many of the shared value pioneers have
been those with more-limited resources—social en-
trepreneurs and companies in developing countries.
These outsiders have been able to see the opportuni-
ties more clearly. In the process, the distinction be-
tween for-profi ts and nonprofi ts is blurring.
Shared value is defi ning a whole new set of best
practices that all companies must embrace. It will
also become an integral part of strategy. The essence
of strategy is choosing a unique positioning and a

Not all profi t is equal. Profi ts involving a social purpose
represent a higher form of capitalism, one that creates
a positive cycle of company and community prosperity.
HBR.ORG
12/3/10 3:46:57 PM12/3/10 3:46:57 PM
>
nation initiative, for example, is now producing a
stream of fast-growing products and services across
the company.
A shared value lens can be applied to every major
company decision. Could our product design incor-
porate greater social benefi ts? Are we serving all the
communities that would benefi t from our products?
Do our processes and logistical approaches maxi-
mize efficiencies in energy and water use? Could
our new plant be constructed in a way that achieves
greater community impact? How are gaps in our
cluster holding back our effi ciency and speed of in-
novation? How could we enhance our community as
a business location? If sites are comparable economi-
cally, at which one will the local community benefi t
the most? If a company can improve societal condi-
tions, it will often improve business conditions and
thereby trigger positive feedback loops.
The three avenues for creating shared value are
mutually reinforcing. Enhancing the cluster, for ex-

ample, will enable more local procurement and less
dispersed supply chains. New products and services
that meet social needs or serve overlooked markets
will require new value chain choices in areas such as
production, marketing, and distribution. And new
value chain confi gurations will create demand for
equipment and technology that save energy, con-
serve resources, and support employees.
Creating shared value will require concrete and
tailored metrics for each business unit in each of the
three areas. While some companies have begun to
track various social impacts, few have yet tied them
to their economic interests at the business level.
Shared value creation will involve new and
heightened forms of collaboration. While some
shared value opportunities are possible for a com-
pany to seize on its own, others will benefit from
insights, skills, and resources that cut across profi t/
nonprofit and private/public boundaries. Here,
companies will be less successful if they attempt
to tackle societal problems on their own, especially
those involving cluster development. Major compet-
itors may also need to work together on precompeti-
tive framework conditions, something that has not
been common in reputation-driven CSR initiatives.
Successful collaboration will be data driven, clearly
linked to defi ned outcomes, well connected to the
goals of all stakeholders, and tracked with clear
metrics.
Governments and NGOs can enable and reinforce
shared value or work against it. (For more on this
distinctive value chain to deliver on it. Shared value

opens up many new needs to meet, new products
to off er, new customers to serve, and new ways to
confi gure the value chain. And the competitive ad-
vantages that arise from creating shared value will
often be more sustainable than conventional cost
and quality improvements. The cycle of imitation
and zero-sum competition can be broken.
The opportunities to create shared value are
widespread and growing. Not every company will
have them in every area, but our experience has been
that companies discover more and more opportuni-
ties over time as their line operating units grasp this
concept. It has taken a decade, but GE’s Ecomagi-
Creating shared value (CSV) should supersede corporate social
responsibil-
ity (CSR) in guiding the investments of companies in their
communities. CSR
programs focus mostly on reputation and have only a limited
connection to
the business, making them hard to justify and maintain over the
long run. In
contrast, CSV is integral to a company’s profi tability and
competitive posi-
tion. It leverages the unique resources and expertise of the
company to create
economic value by creating social value.
HOW SHARED VALUE DIFFERS
FROM CORPORATE SOCIAL RESPONSIBILITY
CSV
In both cases, compliance with laws and ethical standards
and reducing harm from corporate activities are assumed.

> Value: doing good > Value: economic and societal
benefi ts relative to cost
> Citizenship, philanthropy,
sustainability
> Joint company and community
value creation
> Discretionary or in response
to external pressure
> Integral to competing
> Separate from profi t
maximization
> Integral to profi t maximization
> Agenda is determined by
external reporting and
personal preferences
> Agenda is company specifi c
and internally generated
> Impact limited by corporate
footprint and CSR budget
> Realigns the entire company
budget
Example: Fair trade purchasing Example: Transforming
procure-
ment to increase quality and yield>>>>CSR

IntroductionThis paper will provide a review of the compliance r.docx

IntroductionThis paper will provide a review of the compliance r.docx

Recommended

Recommended

More Related Content

Similar to IntroductionThis paper will provide a review of the compliance r.docx

Similar to IntroductionThis paper will provide a review of the compliance r.docx (20)

More from normanibarber20063

More from normanibarber20063 (20)

Recently uploaded

Recently uploaded (20)

IntroductionThis paper will provide a review of the compliance r.docx