Balanced economic growth and prosperity of a developing country like Bangladesh basically depends on reducing the gap between rich and poor as well as between rural and urban people through satisfying their unmet or less focused social needs. The mentionable social needs of the country include but are not limited to food security, greater financial security, better health, better housing, quality education, improved nutrition, support for disable and aged people, support for disaster prone communities, support for agriculture and Small and Medium Scale Enterprises (SMEs), support for the women entrepreneurs, access to formal banking, and environmental protection (Islam and Hossain, 2018a). Perhaps, these are “the highest unmet needs in the global economy and corporate entities have a leading role in fulfilling these needs” (Porter and Kramer, 2011).
Banking corporations being the center of all economic functions have a principal role in formulating appropriate agriculture, SME, environmental risk reduction, women entrepreneurship development, and rural micro-credit policy to satisfy those unmet needs and challenges. It is also necessary to bring the unbanked rural people into the formal banking network and services to accelerate their socio-economic development. The sound business mix of banking industries should be developed in such a way that, at the one hand, could ensure economic success of banks and best serve the society on the other (Islam, 2017).
Unfortunately, majority of the banking corporations is less focused or not at all focused on creating shared value (value for both the business and society simultaneously). Most of the banks and non-bank financial institutions are addressing social issues through so called philanthropy, which contribute to mitigate some sort of social problems at the expense of the stockholders through low dividend and tax exemption. Furthermore, they are maximizing short term profit through providing loans to inessential areas and locating branches mostly in the urban areas with high profit prospect thus leaving many rural people with small saving unbanked.
However, some PCBs are to some extent creating shared value (i.e., looking for societal interests for their self interest) by taking it as the core of their banking business. They are creating Shared Value through promoting innovative and entrepreneurial banking products such as financing for SMEs, agricultural, women entrepreneurship development, environment friendly business as well as promoting farmers banking and school banking. Besides, in order to bring the unbanked or under-banked rural mass into the banking network and services, some PCBs are proactively engaging into the mobile financial services that offer instant money transfer from one corner of Bangladesh to another along with other banking services using cell phone. Some others are intensifying their rural branches to cater to the banking needs of the SMEs, agriculture and unbanked or under-banked rural people. Majority of the PCBs are engaging in such endeavors merely to comply with the directives relating to inclusive and sustainable development set by the regulatory body. However, some are taking these initiatives as a part of their core banking choice in order to increase competitive viability. The study thus aims to develop a conceptual model of creating shared value by private commercial banks in Bangladesh in light of the Creating Shared Value (CSV) concept developed by Porter and Kramer.
Literature review
Concept of CSR
Although the concept of corporate social responsibility (CSR) has been advocated for decades (Caroll, 1999; Jenkins, 2005) and is commonly deployed by corporations globally, agreement on how CSR should be defined and implemented remains a debatable issue in academic circles, business and society (Hemingway, 2002; Matten and Moon, 2008; Smith, 2011). CSR is the obligations of businessmen to pursue those policies, to make those decisions, or to follow those actions that are desirable in terms of the objectives and values of particular society (Bowen, 1953, p.44). Similarly, CSR is the businessmen’s decisions and actions that go beyond the firm’s direct economic and technical interest (Davis, 1960, p.70). It is not only economic and legal obligations of corporations but also certain responsibilities to society which extend beyond these obligations (McGuire, 1963; Davis and Blomstrom, 1966). Fitch (1976) observed CSR as the serious attempt of corporation to solve social problems caused wholly or in part by it. Carroll (1979) blended the aforementioned definitions of CSR into a four-part definition: economic, legal, ethical and discretionary expectations that society has on organizations at a given point in time. Later on, Carroll (1991) revisited his four-part definition adding ethical and philanthropic functions.
Despite the above mentioned historical definitions of CSR, the concept is still changing from country to country and organization to organization. Matten and Moon (2008) conceptualized CSR in a European context and differentiated between explicit and implicit CSR. Explicitly CSR referred to as voluntary and self driven policies and strategies of corporations to address issues perceived as being part of their social responsibility. Implicitly CSR referred to the values, norms and rules which compel corporations to address issues stakeholders consider a proper obligation upon corporate actors. The World Business Council for Sustainable Development (WBCSD, 1998) characterizes CSR as an ‘enduring word of honor by business to act morally and contribute to economic growth while improving the quality of life of the workforce and their families as well as of the local community and society at large’.
Thus, the definitions of CSR vary significantly as different authors and organizations defined it in different ways. From the aforementioned definitions of CSR, it can be characterized as voluntary activities of business firm, giving back to society, ethical practices, corporate philanthropy, isolated from core business activities and company profitability, and it is done at the expense of the shareholder’s money for which they receive no direct return.
Arguments against CSR
CSR provides corporations with strategic ideas to fulfill stakeholders’ needs and to comply with social responsibility (Clarkson, 1995). Moreover, it allows corporations to limit their scope to a selection of problems faced by societies (Clarkson, 1995). However, this kind of social responsibility or philanthropy is done due to external pressure (Bendell, 2004; Broomhill, 2007; Porter and Kramer 2011) and thus there is an incredible debate about its efficacy. CSR efforts are sometimes criticized as nothing more than ‘window dressing’, ‘blue washing’, ‘green washing’ or a ‘giant public relations campaign’ (Waddock, 2008). Scholars have agreed that CSR efforts are good for society but they varied their opinion regarding the direct benefits of those efforts to the shareholders of the firm (Mcwilliams et al., 2006; Hart and Milisten, 2003; Porter and Kramer, 2006, 2011). Academic studies on this subject have focused on investigating the interrelationship between CSR and corporate financial performance. Some researchers have found that CSR engagement of firms improves financial performance (Bruke and Logsdon, 1996; Orlitzky et al., 2003; Cochran and Wood, 1984). Others have found that there is no correlation between CSR engagement of firms and improvement of financial performance (Griffin and Mahon, 1997; Mcwilliams and Siegel, 2000; Margolis and Walsh, 2001).
Transforming focus from CSR to CSV
Although researches show equivocal relationships, there is however no way to avoid CSR because of the interrelationship between business and society. Business enterprises depend on society for all sorts of resources, securities, recognitions, and customers for the products or services they offer. Conversely, society depends on business for products or services, employment and the like. Moreover, various business actions have negative social and environmental impacts that should be addressed by the business itself. Vogel (1992), in Campbell, 2007, p.947) observed that deceiving customers, swindling investors, exploiting and even abusing employees, putting consumers at risk, poisoning the environment, cheating the government etc. by corporations are not uncommon. Still, some corporate entities do opposite of those irresponsible behaviors by giving to charities, supporting community activities, treating their workers and customers decently, obeying laws, and maintaining standards of honesty and integrity (Campbell, 2007, p.947).
The voluntary giving or philanthropy such as charities, supporting community activities etc. to society at the expense of corporate stockholders is not sufficient to meet the huge unmet needs of large number of people of a developing country. Now the question arises, how corporations can balance between business and social interests. Porter and Kramer (2011) have argued that both the social and business interests can be harmonized through ‘creating shared value’ which involves “creating economic value in a way that also creates value for society by addressing its needs and challenges”. In their prior research, the authors mentioned the fact that the existing approaches to CSR are disconnected from core business strategies and therefore they are hindering corporations from capitalizing greatest opportunities to benefit society (Porter and Kramer 2006). The authors suggested corporations to analyze their prospects for social responsibility through core business choices in order to make it a source of opportunity, innovation, and competitive advantage (Porter and Kramer 2006).
CSR vs CSV
Both CSR and CSV approach advocate corporations to address social needs, to comply with laws and ethical standards, and to reduce noxiousness of corporate activities. Nonetheless, there are some significant differences between the two approaches.
Unlike CSR, which assume businesses to consider social responsibility as supplementary, the shared value approach assumes that social responsibility is the center of every business performance. Shared value is not about personal values, nor about “sharing” the value already created by firms as is assumed by CSR. Instead, shared value is about expanding the total pool of economic and social value (Porter and Kramer, 2011). That means shared value is created when business undertake various unmet or less addressed social needs and challenges as business opportunity. Hence, earning fair profit from social purpose is justified. This concept takes into account philanthropy only when it creates social as well as business value.
CSR is done voluntarily and it is not directly related to profitability, productivity, and competitive advantage, whereas CSV is integrated with core products and services of corporations therefore, directly linked to profitability, productivity, and competitive advantage.
CSR is done in response to external pressures (Epstein, 1989; Wood, 1991; Porter and Kramer 2011) and corporate preferences to get tax exemptions but CSV is internally generated and company specific (Porter and Kramer 2011, Lapina et al., 2012).
CSR approach denotes value as ‘doing good’ for someone or something from the business profit but the CSV approach “looks at surrounding environment and society as part of the business model; hence doing good for the society is a prerequisite for doing well in business” (Lapina et al., 2012, p.1607).
Framework for analyzing CSV
The CSV argues that companies can create shared value in three distinct ways: reconceiving products and markets, redefining value chain to improve productivity, and enabling supportive local clusters (Porter and Kramer, 2011). These three ways are clarified below as their characteristics are imperative for data analysis.
Way 1: Reconceiving products and markets
Porter and Kramer (2011) defined it as satisfying unmet or less addressed needs of the disadvantaged communities. That means if poor and disadvantaged section of the society is benefited from corporate products and services, shared value is created. PCBs in a developing country can satisfy unmet banking needs of large number of unbanked people through investing in innovating products such as SME (including firms of women entrepreneurs), agriculture (including rural microfinance), mobile financial service and environment friendly banking. PCBs can also involve in educating stakeholders, building trust on banking activities, showing concern and caring for employees in the workplace, creating direct and indirect employment opportunities, and helping the distressed and vulnerable people. Hence, business value can be measured through improved profitability, productivity, market share, quality, goodwill, brand image, and reduced operating costs and resources use. Whereas, social value can be measured through improved job creation, banking access, beneficiary income, regulatory compliance, government income, customer and employee learning, responsible & ethical practices, less environmental footprint and many more.
Way 2: Redefining value chain to improve productivity
CSV argues that as social problems create economic costs in the firm’s value chain, company must look for factors that might affect its energy and resources use, logistics, distribution, health and safety, working conditions, equal treatment in the workplace and employee productivity (Porter and Kramer, 2011). PCBs in a developing country can improve productivity through redefining their value chain activities in terms of online banking, ATMs, CDMs, easy money transfer, e-commerce, cash management and call center services. PCBs can also improve productivity through in-house environment friendly practices. Some of the actions include: using electronic form for internal memos, notes, records, communicating with customer through e-mails, SMS or ATM display instead of letter communication; using video conferencing system to communicate with bank officials; and using solar energy as a source of power. These practices will not only save corporate money through reducing paper, energy and transport use but also ecological footprint. Moreover, when customers find quality service conveniently, reliably and at low cost, shared value is created.
Way 3: Enabling supportive local clusters
Porter and Kramer (2011) defined cluster as “geographic concentration of firms, related businesses, suppliers, service providers, and logistical infrastructure in a particular field”. The authors emphasized that clusters are prominent in all successful and growing regional economies and play a crucial role in achieving productivity, innovation, and competitiveness. PCBs can create shared value through cluster based financing while addressing gaps in the framework conditions surrounding the cluster.
Measuring CSV
Porter et al. (2012) proposed a four-step shared value measurement process. First, identifying the social issues to target; second, making the business case; third, tracking progress; and forth measuring results and use experiences to create new value. Several other authors contributed to the shared value measurement process. Dembek et al. (2016) suggested looking for three key areas of shared value concept, which have created the concept, its outcomes, and the beneficiaries of the outcomes. Maltz et al. (2011) developed a nine-step method on resource and externalities-based view in society to compare multiple shared value initiatives on their costs and benefits. Pfitzer et al. (2013) proposed a three-step assessment- firstly, estimate business and social value linking change in social condition to profits; secondly, establish immediate measures and track progress to validate the anticipated link; and finally, assess the shared value produced by measuring the ultimate social and business benefits. Spitzeck et al. (2013) proposed a series of organizational and societal indicators that include financial (profitability, growth, competitive capabilities, and strategic repositioning) and intangible value (reputation, risk reduction, access to government, and long-term legacy) as organizational indicators as well as enhanced positive impact and reduced negative impacts as social indicators.
Definition of key terms
Bank stakeholders: A stakeholder is “an individual or group who can affect, or is affected by, the achievement of the organization’s objectives” (Freeman, 1984, p.46). In this study, stakeholders are individuals or group benefited by the policies and practices of banks. They include employees, customers, stockholders, government, rural community, competitors, and regulators.
Regulators: The authorities that regulate policies and practices of banks and includes the following: Bangladesh Bank, Bangladesh Securities and Exchange Commission (BSEC), Dhaka Stock Exchange (DSE), Chittagong Stock Exchange (CSE), and Central Depository Bangladesh Limited (CDBL).
Productivity: Productivity is the efficient use of resources- employees, loans and advances, various funds, materials, energy etc.
SME: The study adopted the definition of SMEs given by Bangladesh Bank (shown in Table 9 in Appendix).
Social problems: Social problems refer to a gap between society’s expectations of social conditions and present social realities.
Social benefits: Social benefits represent financial as well as nonfinancial gain to unfocused or less focused segment of the society.