Shareholder Value, Shared Value, or Social Value Creation - The Troubles of Managing for More than One Bottom Line

Abstract

The financial crisis of 2007/08 has caused many to question the basic premises of the current business system. ‘Business as usual’ has come under heavy scrutiny. Achieving environmental and social sustainability stand out as some of the major challenges that current business leaders have to deal with (Jackson & Nelson, 2004). Social Entrepreneurs who address social or environmental problems in innovative ways could thus serve as role models to 21st century leaders. In a manner unsettling to traditional management styles, social entrepreneurs try most often to create shared value and pursue dual objectives (Alter, 2006; Pirson, 2008a; Rangan, Quelch, Herrero, & Barton, 2007). Achieving positive social and environmental impact is considered key to the motivation (Yunus, 2008). It is assumed that social entrepreneurs are able to create shared value in the sense that they create social and environmental impact while earning income and be financially sustainable (Elkington & Hartigan, 2008). This seemingly simple assumption questions longstanding economic research, and questions some of the basic foundations of organizational research. Scholars in economics and management have long made the case that general welfare is increased most by organizations that maximize a single objective function. Jensen (2002) even opined that without a single objective function, no firm could be managed meaningfully. Accordingly, if organizations were now to focus on a balance of different goals, they would necessarily undermine their impact and not maximize their potential. This tension between the practice of social entrepreneurship and the theoretical insights merit further study, since all too easily proponents of either side end up making arguments based more on ideology and wishful thinking rather than facts. Hence in the below paper, I will examine the question whether social enterprises can indeed create shared value and if so, under what circumstances. After a short introduction to the concept of social entrepreneurship, I will then present three cases of rather prominent social enterprises and analyze their evolution. I will conclude by presenting the conditions in which shared value creation can be managed, and in which circumstances maximization strategies prove superior.

Keywords: Social Entrepreneurship, Shared Value creation, Corporate objective function, Social Enterprise

JEL Classification: A00, I00, M00, M1, R00, Z00