 I'm Jerry Baker, I'm the Deputy Editor-in-Chief of the Wall Street Journal, based in New York, and it's my pleasure to be here this morning with someone you all know very well, Professor Michael Porter of the Harvard Business School, who is one of the most eminent academics in the area of business economics. So, Michael, thank you again. Just tell us first of all, if you would, there's been such a lot of discussion about corporate social responsibility over the last decade or more now. But tell us, you've got an improvement on the idea of corporate social responsibility. Can you just tell us a little bit about the idea that you have been pondering and how you came to develop the insights that you developed as a result? Well, let's start with a basic idea, Jerry. The basic idea, which we call creating shared value, is about actually applying the capitalist model to addressing issues in society, issues like hunger, issues like environment, issues like water, issues like health. And I want to be clear, applying the capitalist model, creating shared value is pure unadulterated capitalism. It's about making money. But the idea is that, actually, there's no artificial need to limit the way you make money just to the conventional needs and the conventional mainstream consumer benefits that companies have been trying to create, that we can open up our thinking about creating economic value by understanding that there's huge opportunities for companies to have fundamental impacts on almost all the major issues in society. And so the idea here is actually to get capitalism working, not against the interests of society and the community, but actually integral to addressing the problems of society and the community. Now, there's a lot of things we can talk about, but rather than go on and on, I'd like to make this a dialogue. Yeah. Well, how does it differ? I mean, we're just going to say we've heard a lot about corporate social responsibility. There's been an acceptance that companies somehow have something beyond the immediate profit motive as an obligation. Yeah. But so how does what you're proposing differs from that? Well, I think we're in a sort of a logical progression. I think that CSR was an effort in companies to be responsible. That word responsible is a very important word. The idea is companies have a responsibility. They need to be good corporate citizens. They need to contribute to the community. They need to comply with community standards. All those things really make up corporate social responsibility. And all that is correct. All those things are important. But ultimately, that motivation for companies is separate from the core of their business. Companies should be good. They should be generous. They should take money from their capitalist activity and invest it in this other stuff. The idea of shared values says that, no, no, no, there's a bigger opportunity. It's not taking money from capitalism and investing. It's actually rethinking how we practice capitalism. See, I think the original CSR idea was sort of do no harm. And a lot of companies set out to kind of see if they could reduce the harms they were producing in variety of ways, environmental harms, safety, accidents, things like that. The idea of shared value is not necessarily possible for every company in every situation, but it's not about actually reducing harms. It's about actually creating value. Value for a social issue, but at the same time, a business model that leads to profit. CSR is fundamentally about redistribution. Take from the prosperous and donate. And that sometimes is the only way to solve some of these issues. And sometimes that's necessary. But the CSV idea says, no, no, that's probably not going to ultimately succeed because there's only so much you can give. What if you could re-engineer the way you do your business so you could actually create a business model to get drugs to lower income people in rural areas, for example? Then you have the magic of capitalism at work. Capitalism is where all wealth is created. There is no wealth created by government. There is no wealth created by NGOs. It's where all the wealth is created. When business makes a profit, magic happens. We're not saying that every company in every situation in every market for every aspect of their business is going to be able to create shared value. But if it opens its thinking, what we find is companies can stretch their markets, stretch their consumer, differentiate themselves in completely different ways, and frankly operate their value chains in a fundamentally different way. Remember, we used to, you know, I remember, you know, not very long ago when people in business thought that being environmentally responsible was expensive. And that's the old style mindset that there's a trade-off between a social agenda and a business agenda. Now we're kind of understanding that companies can save massive amounts of money by saving energy and using resources better and thinking hard about packaging. And it's not about philanthropy. It's not about being a good guy, you know? It's about actually doing business in a smart way. So this shared value idea is just a way of opening up business to thinking about new ways of designing and developing and marketing their products and also operating business. And the trigger for it, the pull for it, the tug for it is to think about how a company can actually itself impact issues that have traditionally been defined as social issues. Capitalism has been doing this forever. Yeah, this is my point. Been doing it forever. But we've got stuck in many businesses in a very narrow view of how to compete, of who our customer was, of how to serve that customer well, of how to operate a supply chain. We got stuck because, and we didn't understand all the opportunities that we were kind of leaving on the table. Let me just, I'm just trying to figure out, because my point is that, yeah, this is how capitalism has developed looking for needs that are out there and seeking to supply those needs at the same time by gaining profit from doing it. And that's how the world has developed. That's how the world works for 100 years. But isn't it interesting that capitalism has a bad name and is viewed as dangerous for society? Right. And that's the trigger here. Why would business be seen as working against the interest of society? And I think at least the conclusion that we were reaching is that business was not understanding its power to actually benefit society. Isn't there a risk, though, that if companies go out of their way, I mean, explicitly seek social, look for opportunities where there seems to be social need, and where the primary motivation is the fulfillment of that social, the filling of that social need, that actually they will not be successful companies. They won't be successful companies because they won't be profit maximizing. That's absolutely a risk. But remember when I said the beginning, creating shared value is pure unadulterated capitalism. If you can't make money doing it, you shouldn't do it. Then it becomes part of the CSR bucket. And if it gets into the CSR bucket, there's only so much you can do. There's only so much you can give. There's only so much you can donate. There's only so many NGOs you can support. And the idea here is how much can we move things into the capitalism bucket? But capitalism means making money. So the other thing you need to say about creating shared value is it's business specific. There's no formula that applies across all companies. It's not a one size fits all. You know, a pharma company thinks differently than a mining company thinks differently than Federal Express thinks differently than Marriott. It's business specific because capitalism is business specific. Talk a little bit about you develop the concept. I think you've developed particularly three, three areas of where CS, where companies can practice CS. Can you talk a bit about those areas? The idea is that the from all the work we've done and all the companies we've worked with over the years, there seems to be kind of three buckets here. One has to do with the product itself and what features or needs the product is actually meeting and the customers that the company is seeking to serve. And the shared value idea says, well, there's a many social dimensions that can be embodied in a product. And there's often customers whose needs that have not been served that are available. So there's the product opportunity. The second opportunity has to do with what I call the value chain, the way the company actually conducts this business that has to do with the supply chain and procurement and operations and logistics and customers service and so forth. And again, if we look at that value chain with a kind of shared value perspective, again, we open up new opportunities to save energy, save packaging, have more beneficial impacts on our suppliers that benefit them and their employees. And then the third bucket has to do with what I call a cluster. That is the businesses and institutions around a company. Any company doesn't do everything inside the company. It depends on lots of other organizations to do their job well in order to be productive and efficient and grow its business. And the third kind of opportunity in shared value is to think about that ecosystem around the company. And the better that ecosystem is, the more effective and competitive the company can be. So those are the three buckets. We find that most companies can discover some new opportunities in each of those areas. A great example I like to use and it really illustrates the distinction between CSR and CSV is the whole way by which you procure agricultural commodities from, particularly from small farmers. Now the CSR approach to low incomes of small farmers, the CSR approach is fair trade. Pretty much everybody in this room has probably bought a fair trade product. Fair trade is about making sure that those poor farmers get an adequate price for their crop. Do the farmers have to, and that's being good. It's fair for those farmers to get an adequate price for their crop. We're being good by making sure that they get an adequate price for their crop. And yes, that'll improve the incomes of the farmers. But that's not a sustainable solution. That's just redistribution. That's paying more for the same thing. That's just passing income from one party to another. This other model of procurement is very different. It says if you act as a capitalist, if you're a smart buyer, if you work more closely with your supplier, if you help your supplier improve, that allows tremendous improvements in the farmer's income. The farmer can increase their yield. They can increase their quality. They get higher prices. And you raise their income not by charity, not by being a good corporate citizen, but you actually raise their income by being a better capitalist. It's a win-win. It's profitable. We're running quite short of time. We'll have a couple more questions. How does a financial institution go about creating shared value? You could argue, I'd be cynical for a moment, and say that maybe a great idea is to develop something called a subprime loan where you go out and you seek people who are unable to get regular access to financial markets and you create these wonderful products and then maybe you securitize them and who knows? But I'm being flippant. It's a great example. It's a big issue for financial institutions. What do they do? I think your example is a wonderful example of this was a product that was not good for many of the customers who bought it. So here's an industry that made money, you know, in a way that actually was potentially harmful for their customer. Final question. What are the policy implications here? I mean, a lot of what you're talking about seems to be on that frontier between government's role in an economy and the private sector's role in the economy. What should, I mean, should there be tax incentives to encourage companies to do this? Should there be areas that the government should say, no, no, this is our area of social responsibility? Well, I think first of all, there's a big idea here is that government and NGOs will be much more successful at what they are seeking to do if they can enable shared value on the part of the private sector. And that often requires either skills or platform investments or other sorts of sort of pre-competitive investments that will then allow business to kind of go at this shared value stuff. If we can get capitalism to work, we get some tremendous benefits. Number one, it's scalable. We can do it at infinite scale. Number two, it pays for itself. It doesn't require donations. It doesn't require philanthropy. Number three, it's kind of dispassionate. If you're not creating a benefit that funds itself, then it's not worth doing. You know, so I think that if we want to change the attitude of the public to business, it's going to be based on what we in business do, what we achieve, what we accomplish. And this is a way of getting businesses thinking about that question. Michael, we have remarkably, and given we cover a lot of ground, I could cover so much more, but remarkably, and unfortunately we've run out of time, but I please, ladies and gentlemen, join me in thanking Michael Porter.