The challenge of balancing shareholder interests and public opinion
Big pharma companies traditionally operate in a sensitive field. On the one hand, they need to generate profits for their shareholders and for research funds to develop new treatments for all types of diseases. On the other hand, they contribute significantly to the happy and healthy life of millions – at least of those who can afford to buy their drugs. This last issue has increasingly set the pharma industry on the radar of public concern. Activist groups and NGOs have launched strong critiques that pharma companies are underserving the people with the greatest need, especially in countries in Southeast Asia and Africa, where prevalent infectious and NCDs (non-communicable diseases like cancer) constitute a double threat. In the past, pharmaceutical firms tried to take wind out of the NGOs’ sails through corporate philanthropy with social contributions, spending an estimated total of $3.4 billion on outreach in 2009 alone. But pure philanthropy is, by definition, a revenue drain and therefore tricky for companies to sustain, particularly in tougher economic times. Besides the wary eye of the public, the pharma industry also faces economic pressure: R&D is generating fewer blockbuster drugs; uncertain economic growth and reduced government spending in the developed world are slowing sales growth, and higher regulatory expenses and reduced profitability are also putting pressure on R&D budgets.
Creating shared value for the good of communities and companies
How to proceed in such an environment? Clearly, the pharma players faced the challenge of breaking fresh ground. What some discovered in this situation was the concept of creating shared value. This concept rejects the idea that a company can only flourish by putting its own best interests ahead of the community. It was first brought to the attention of a wider public by Michael Porter and Mark Kramer in an influential Harvard Business Review article in 2011. Shared value is defined as “corporate policies and practices that enhance the competitiveness of a company while simultaneously advancing social and economic conditions in the communities in which it operates.” It results in a “win-win” situation for all parties. This approach shares core principles with corporate social responsibility (CSR) as it is conventionally understood but according to Porter and Kramer differs from CSR in two key ways:
- Shared value is proactive rather than reactive
- Shared value is directly aligned to profit maximization rather than being peripheral to revenue-generating activity
Porter and Kramer set the shared-value bar even higher, arguing initiatives such as fair-trade purchasing that merely involve a “redistribution of value” do not count. To truly qualify as an example of a “higher form of capitalism,” as described by Porter and Kramer, companies must do more than just move money around. They need to reorient their business around the mission of creating social and economic value as part of the same core business activity (see Figure 1).