Can big business integrate corporate social responsibility into strategy to regain legitimacy? The legitimacy of business, the trust that people place in business, is at a low point. Business legitimacy is a matter of strategy, leadership, and responsible corporate behavior. Starting with that premise, Michael Porter, the dean of competitive strategy, argues that business must remake itself in order to regain its legitimacy.
Business must find a way to engage positively in society, but this will not happen as long as it sees its social agenda as separate from its core business agenda.
Corporate social responsibility is often seen as an adjunct to the company’s core operations. Porter reframes the corporate social responsibility discussion as one of embedding social issues in the company’s core activities. Social imperatives must become more than just window dressing. While this premise makes sense, the question is whether inner city revitalization is the social issue that deserves the highest priority.
Charles Green, author of The Trusted Advisor, argues that Porter’s recommendation is internally contradictory and won’t work because business cannot focus on the long term. According to Green, Porter’s Five Forces framework for analyzing industry advocates competing again suppliers, customers, and government. This view of strategy is contrary to long term thinking and collaboration. Green argues that we have placed markets and relationships at odds with each other:
We have painted ourselves into such a corner of short-termism that we cannot conceive of relationships without monetizing them. In substituting markets for relationships, we traded trust for liquidity.
Discussion
I have two quick thoughts about Green’s statement. First, I do not agree with Green’s characterization of Porter’s framework. Some believe that competing precludes collaborating. That is a narrow reading of Porter and of competitive strategy more broadly.
Second, although we have substituted markets for relationships to a large extent, markets can never replace relationships. Certainly there is a tension between markets and relationships. However, relationships are an inherent part of market exchange. Economic sociologists [see Note 1], myself included, and others have studied how social networks both enable and constrain organizations in areas such as corporate governance, organizational performance, and market structure. We still have a long way to go in understanding how social networks affect business actions (e.g., investment decisions).
If we are going to pursue Porter’s vision, we must better understand how market relationships affect wealth creation. What is wealth creation? Wealth creation is about how economic exchange, technological innovation, and responsible business behavior produce value. Boards of directors, entrepreneurs, leaders, startups, and markets play critical roles in wealth creation. To be continued…
Douglas Y. Park
Twitter: @DougYPark
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Note 1. See “What is economic sociology and should any economists care?” by Robert Gibbons, Journal of Economic Perspectives, 19 (2005): 3-7. Link at http://web.mit.edu/rgibbons/www/.