Creating Shared Value - The future of Capitalism?

General Discussion
#1

I’m not sure where to put this thread. It’s not car related but it’s about corporations and capitalism which in a way includes car companies as they are deeply entwined in our corporate and capitalistic society (I read somewhere that 1 out of 10 people in the US are directly or indirectly working with the automotive industry).

My question is related to Michael Porter’s concept of “Creating Shared Value” for corporations in order to save capitalism from a downward spiral of forever narrower financial goals and objectives.

I tend to agree with this idea but I wanted to start a discussion/debate on the topic and see what others had to say about it.

The article is a Harvard Business Review article originally written in 2006 and revised/updated in 2011.

Although the article normally needs to be purchased, I found a PDF link to the full article here:

http://community-wealth.org/sites/clone.community-wealth.org/files/downloads/article-porter-kramer.pdf

It’s an interesting read for anyone interested in new concepts regarding capitalism and the role of corporations in our global world.

Let me know your thoughts if you’ve managed to read the full article :slight_smile:

And if this is in the wrong forum section, my apologies and mods, feel free to move it accordingly.

Thanks.

#2

If the premise of the article is that capitalism creates a downward spiral of any sorts, I wouldn’t even bother reading it. Not worth my time - I’ve seen/read enough of that. Nothing in human history has done more to alleviate poverty and raise the quality/standard of life than the free flow of goods and services. Only the pope francis caucus and their ilk can’t grasp that and would like to see us return to the Stone Age.

As it relates to corporations, the only goal there - most emphatically - is to maximize shareholder value. Any corporate officer who speaks of corporate “social responsibility” and other hogwash deserves to be fired.

/endrant

#3

I subscribe to a stakeholder first version of capitalism over a shareholder first model:

https://hbr.org/2009/07/shareholders-first-not-so-fast

#4

At least two people replied to offer their opinions :slight_smile:

Clochner, instead of asking, why don’t you read it? It doesn’t look like it’ll be up your alley but it doesn’t demonize capitalism either (in my opinion, it’s trying to save it). I don’t know if you’ve ever heard of Michael Porter but he’s considered a pretty big deal over the last 30+ years when it comes to business concepts.

westwest, I know of the stakeholder first concepts. The CSV is the next level I guess. Trying to create more value for both stakeholders and shareholders and doing it in a sustainable way so that the money will keep flowing in over time.

#5

https://youtu.be/RWsx1X8PV_A

#6

I approve. 8)

#7

Just watched the video. Free enterprise is absolutely the best system. The question isn’t about that. The question is whether company’s should begin looking into shared value or whether there’s no need. If you haven’t read the article, creating shared value is both creating profits for the company as well as creating benefits to society (hence the word shared) in order to have a long term sustainable operation for long term business success.

Or is the current system of maximizing profit and shareholder value still the better course of action and to ignore stakeholders and society or the company’s longevity.

#8

Locally, we have the brewery Sierra Nevada that is one of the major employers, not only that, but Ken Grossman (owner of Sierra Nevada) has managed to become the #2 domestic beer producer (since InBev purchased Budweiser). What sets this company apart is what they do for the community. They are almost 100% self sufficent with solar, they reuse yeast and grains from the beer process to make bread for their resturant. They installed a water system so that they could capture water that normally would be lost in the brewing process and reuse it. They pay their employees a good wage, they provide great health/retirement benefits, they sponsor amazing community events and most importantly, they are constantly giving back to the City of Chico. By sharing in the stresses of the local community, this company always has the support of the local citizens, which looks like that approach is working as they opened a new bottling plant/taprom in Fletcher, North Carolina and it looks just as beautiful as the one here in California.

#9

I think that would qualify as a successful Shared Value initiative. It’s sustainable, it gives to the community and still makes profit.

The example of reusing water is fantastic. Probably costs them less in the long run on top of being better for the environment.

#10

Didn’t realize Sierra Nevada operated such a great biz model! Cool stuff!

#11

Sounds like heat recovery is next in the books for Sierra. Wachusett has a decent setup to transfer heat from the mash to the incoming water

#12

Actually they already have that in place as part of the sustainability plan. The company is actually quite amazing as, and the fact that it is a privately owned company may be part of it, no shareholders to report to. Here is a link to their page overview, it blew my mind that such a huge company thinks about all of the small things.

http://www.sierranevada.com/brewery/about-us/sustainability#/overview

#13

Just read those pages on their site, the expenditures and committment on sustainability are quite amazing. Microturbines for power are pretty sweet.

#14

I think you fundamentally misunderstand free enterprise. “Creating” profits for the company is BY DEFINITION an inherent b e n e f i t to “society.” Let me pose a simple question: who pays for the goods and services that “create” profits to companies? Of course, it’s the consumer. And why do they pay? Of course, it’s because they value what they receive more than the cash they are willing to give in return. Voluntary transactions produce mutual gain, and an overall positive increase in social welfare.

Companies that deviate from their core purpose - i.e., maximizing shareholder value by producing the best possible product or service at the lowest economically viable price - actually DECREASE social welfare by putting their resources to less productive uses. In blunt terms, there is no “stakeholder.” There is simply the producer and the consumer. The two of them bargain spontaneously on billions of daily transactions to discover the appropriate price for each particular good or service. To the extent companies deviate from that perspective, they are violating their duty to the people who own them - namely, the millions of shareholders who own stock in them through their 401ks and other investment vehicles.

In no unclear terms, companies have a duty to maximize their owners’ wealth. And that can only happen by producing/offering a product or service that is valuable to the consumer. Nothing else can make a greater contribution to societal wealth. No “stakeholder” theory. No corporate “social responsibility” theory. All that matters is that a company pursue its own selfish interests in maximizing profit - and it can only do that by producing something of value. Creative destruction takes care of the rest.

#15

Does this mean you disagree with Sierra Nevada’s business operation?

#16

I couldn’t tell you - don’t know anything about them. My post was responding to your shared value post.

#17

I mean from what you’ve read in this thread about the company. I had never heard of them until now.

#18

Clochner your avatar is showing :slight_smile:

I loved reading her books, probably worth a re-read.

#19

Ok, here’s a question for everyone.

Imagine your business is to harness a resource (any resource). This resource replenishes itself at a set rate.

As a business, you have two main options:

  1. Harness that resource at a rate that considerably exceeds the natural replenishment rate.

  2. Harness that resource at a rate equal to the replenishment rate.

Option 1 maximizes near term profits but is not sustainable in the long run. However, as a business man, you know that once that resource has been exhausted, you can start a new company and switch to another resource.

Option 2 does not maximize profits in the near term as you’re matching the natural replenishment rate. You can continue operating at this rate indefinitely. You might even figure out a way to increase the replenishment rate to increase your profits but there’s typically a cap.

Which is most appropriate strictly from a business stand-point? Long term operational sustainability or max out profits in the short term and move on to another resource? (taking into account that starting a new business with a new resource typically has high capital and start-up costs).

#20

how long term is long term

oil and gas companies face this all the time

generally the rule is bring as much out of the ground as possible, as soon as possible, then find new well sites