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International Journal of Law andManagementVol. 52 No. 2, 2010pp. 110-123# Emerald Group Publishing Limited1754-243XDOI 10.1108/17542431011029415

The creative capitalismcorporate governance modelHow radical an approach to modern

capitalism?

Thomas HemphillSchool of Management, University of Michigan Flint, Flint, Michigan, USA

Abstract

Purpose The purpose of this article is exploratory; to evaluate the arguments for creativecapitalism as a viable market alternative, i.e. corporate governance model, for MNCs in lieu of thecapitalist model under which they presently operate.Design/methodology/approach The paper will first explore the attributes making up thecreative capitalism model; second, compare the core attributes of capitalism to Gates conception ofcreative capitalism; third, analyze how creative capitalism fits (or does not fit) within the concepts ofglobal corporate citizenship; fourth, present arguments for creative capitalism to be considered as aviable economic opportunity for MNCs and review the latest management strategy frameworksavailable for implementation; and lastly, summarize the articles major arguments and offerconclusions on the viability of creative capitalism in the global economy.Findings When compared to the essential components of capitalism and the expansion ofgovernment interference in the marketplace, creative capitalism does little more than advocate fornational governments to offer financial and related incentives encouraging corporations to developinnovative solutions for alleviating poverty.Practical implications For managers, this paper provides insights not emphasizing a fortuneat the bottom of the pyramid, but profit opportunities available to innovative multinationalcorporations willing to search for profit opportunities in less developed countries.Originality/value This is a seminal, exploratory evaluation of Bill Gates concept of creativecapitalism and applies previous researchers state-of-the-art management frameworks, including theCorporate Citizenship Model and the Strategic CSR Approach, to his proposed governance model.

Keywords Capitalist systems, Corporate governance, Globalization, Innovation, Poverty,Multinational companies

Paper type Conceptual paper

I. IntroductionIn a January 25, 2008 speech before many of the worlds most influential business, non-governmental and government leaders, at the annual World Economic Forum in Davos,Switzerland, Bill Gates, founder and Chairman of Microsoft Corporation, called for arevision in the prevailing view of modern capitalism and corporate governance. Havinggrown impatient with what he perceives as the shortcomings of modern capitalism, Gatesargues for a creative capitalism which harnesses market forces to address the needs ofthe worlds two billion poorest people. He believes that they are being ignored by thepresent market system and its major institutional participant, the multinationalcorporation (MNC) (Guth, 2008). For Gates, there is simply one vital question: How canweeffectively spread the benefits of capitalism and the huge improvement in quality of life itcan provide to people who have been left out (Gates, 2008b)?

Has Gates, with his call for creative capitalism, lost faith in an economic systemwhich has personally allowed him to become the richest man in the world? To thecontrary; far from abandoning his faith in this economic system (recently referred to bySchramm (2006) as entrepreneurial capitalism), he believes that capitalism, in what

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he describes as his creative form, can bring much needed relief from the presentpoverty, illiteracy and disease afflicting one-third of the worlds population (Guth,2008). By tapping into what C.K. Prahalad (2004), University of Michigan-Ann Arborbusiness school professor, calls the fortune at the bottom of the pyramid, MNCscan take the lead, in partnership with non-governmental organizations (NGOs) andgovernments to address the needs of the worlds poorest people in their role as profit-making innovators for finding solutions to this persistent global dilemma (Guth, 2008).

The purpose of this article is exploratory; to evaluate the arguments for creativecapitalism as a viable market alternative, i.e. corporate governance model, for MNCs inlieu of the capitalist model under which they presently operate. Following thisintroduction, the author will first, based on the Microsoft chairmans Bill Gates ownwords, explore the attributes making up the creative capitalism model; second, the authorwill compare the core attributes of capitalism to Gates conception of creative capitalism;third, the author will follow with an analysis of how creative capitalism fits (or does notfit) within the concept of global corporate citizenship; fourth, the author will present thearguments for creative capitalism to be considered as a viable economic opportunity forMNCs and review the latest management strategy frameworks available for its successfulimplementation; and fifth, and lastly, the author will finish the article with a summary ofthe articles major arguments and offer conclusions on the viability of creative capitalismin the global economy.

What is creative capitalism?In his World Economic Forum speech, Bill Gates (2008a) identifies himself as animpatient optimist who believes the world is getting better but just not fast enoughfor everyone, especially not for the billion people who live on less than one dollar a day.Granted, says Gates, the status of women and minorities is better almost everywhere,life expectancy has nearly doubled over the last century, and the number of people whoexercise economic and political freedom is greater than at any time in history. Yet thereare a billion people who are not only are missing out on the great inventions of thecomputer age and the material benefits of the global economy, but are faced with theinequities of lacking basic nutrition, potable drinking water, and electricity on a dailybasis, not to mention being exposed to a multitude of transmittable diseases.From Gates perspective, if we are going to have a chance of changing their lives, weneed another level of innovation. Not just technology innovation, we need systeminnovation . . . Gates solution is to find a way to make the aspects of capitalism thatserve wealthier people serve poorer people as well. Says Gates:

I like to call this idea creative capitalism, an approach where governments, businesses, andnonprofits work together to stretch the reach of market forces so that more people can make aprofit, or gain recognition, doing work that eases the worlds inequities.

According to Gates, the genius of capitalism lies in its ability to make self-interest servethe wider interest. The Microsoft chairman sees two great forces vying in humannature: self-interest and caring for others. Consequently, creative capitalism must fulfillthe twin mission of making profits and improving the lives of those who do not fullybenefit from todays market forces. Gates believes that we need to use profit incentiveswhenever we can, however this needs to be matched with another incentive, recognition,which enhances reputation and appeals to customers and attracts good people to anorganization. The challenge is to design a system where market incentives, includingprofits and recognition, drive those principles to do more for the poor. Citing the January

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19, 2008 edition ofThe Economist, specifically a section dedicated to reviewing the statusof corporate responsibility on a global basis, Gates says it put the problem very nicely;its the interaction between a companys principles and its commercial competencies thatshape the kind of business it will be.

For Gates, his vision of creative capitalism gives the most innovative thinkers inMNCs the time and resources to find solutions and:

[. . .] matches business expertise with needs in the developing world to find markets that arealready there, but are untapped. Sometimes market forces fail to make an impact indeveloping countries not because theres no demand, or even because money is lacking, butbecause we dont spend enough time studying the needs and requirements of that market.

Gates cites examples of this creative capitalism approach, including how theWorld HealthOrganization (WHO) expanded the use of vaccines for meningitis by going to Africa andasking the people directly of their needs. These WHO officials, when questioning thetarget population, found out from mothers that they would get vaccinations for theirbabies if the pharmaceutical company priced it at less than 50 cents a dose. WHO officialsthen placed this pricing challenge out to vaccine pharmaceutical manufacturers. SerumInstitute, an Indian vaccine manufacturer, accepted the challenge developed a new processto manufacture the vaccine for 40 cents per dose and agreed to supply 250 milliondoses through both the public and private health systems. Furthermore, a Dutchpharmaceutical manufacturer agreed to share its patent rights on a cholera vaccine noroyalties required with generic pharmaceutical manufacturers in developing countries.The result: a Vietnamese company nowmanufactures the cholera vaccine for less than onedollar, which includes delivery and the costs of the immunization program. Because of thelowmarginal cost of manufacture of many advanced products, the use of tiered pricing, i.e.multi-point price differentials between the developed and developing world, can be usedbroadly to address problems of the poor in developing countries.

While Gates acknowledges a role for government, including funding basic research, hebelieves that the highest leverage work that governments can do is to set policy to createmarket incentives for business activity that improves the lives of the poor. As anexample of such a government incentive, Gates cites the recently enacted (September 27,2007) Elimination of Neglected Diseases Amendment to the U.S. Food and DrugAdministration (FDA) Revitalization Act, which allows a pharmaceutical manufacturerwho develops a new treatment for a neglected disease, for example, malaria, to receive apriority review voucher with the FDA for another product they have invented. Thispriority review voucher could have significant regulatory value to a company byspeeding a product to eventual commercialization. The use of Advanced MarketCommitment, whereby governments and foundations promise specific sums of money tobe spent on vaccines successfully developed for neglected diseases, is another example ofan important role for government. Gates also notes that where theres good governancethe government can be a good partner addressing some of the tougher problems ofeducation, infrastructure, nutrition, andmedicine.

NGOs also have an important role to play in creative capitalism. Gates cites theSchwab Foundation for Social Entrepreneurship, established by Klaus Schwab, thefounder of the World Economic Forum, as an example of an NGO which assists socialentrepreneurs around the world who turn their innovative ideas into goods andservices, thus helping people improve their lives. Furthermore, individuals, such asBono, the lead singer of U2, is responsible for initiating the RED Campaign, wherebyMNCs, including the Gap, Motorola, Armani, Dell and Microsoft, contribute a

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percentage of each consumer purchase to the Global Fight for AIDS, Tuberculosis andMalaria which now adds up to $50 million and resulted in two million Africans nowreceiving life-saving drugs. As partners, Gates also believes that relationships betweenNGOs and MNCs have matured so that negotiations regarding expectations fromboth parties perspectives are reasonable and attainable.

Gates challenges MNCs, governments, and NGOs to take on a project of creativecapitalism in the upcoming year. Specifically, he hopes that CEOs will personally takethe lead and dedicate a percentage of their top innovators time to issues that couldimprove the lives of the worlds poor. He cites some specific examples of firms andindustries, including pharmaceutical manufacturer GlaxoSmithKline and SumitomoChemical, and the food, information technology, telecommunications, and financialservices sectors, who are already pro-actively pursuing such creative capitalisminitiatives. Gates wants other MNCs to match these outstanding efforts of leadingMNCs by initially concentrating on one, or at most, only a few projects. He emphasizesthat a firm should be sticking to what it knows well that is, its true identity, andbuild its creative capitalism initiative on core competencies or organizational function,e.g. product distribution. In conclusion, Gates believes that it is necessary forcorporations, governments, NGOs and the media to develop and publicize measures even mapping efforts by industry sector of what MNCs are actually doing tosustainably serve a wider circle of people and to reduce poverty in the world andprovide accountability for their creative capitalism efforts.

II. Capitalism vs creative capitalismAs Robert A. Degen (2008) writes in his recent book The Triumph of Capitalism, it isimportant to know that what is understood to be capitalism has changed verysignificantly over time. While the capitalist model has evolved in practice over thecenturies, an understanding of the essential attributes of the socio-economic system ofcapitalism is an important departure point for a discussion and analysis of Bill Gatescreative capitalism. According to The Clemson Institute for the Study of Capitalism(2008), located at Clemson University, Clemson, South Carolina (USA):

Capitalism is the social system that separates economy and state completely. It is the socio-economic system where all property is privately owned, where freely formed contracts form thebasis of economic interaction, andwhere government does not engage in regulation, supervision,or direction of processes. In short, it is a government policy of non-interference with theeconomic lives of its citizens; it is the system of laissez-faire. The proper implementation of aprogram of laissez-faire capitalism, however, requires an appropriate political system at its base.

The above definition of capitalism provides the essential elements of this socio-economic system. How does creative capitalism compare with the essential elementsfound in this definition of capitalism? As can be seen in Figure 1 (A comparison ofthe essential elements of capitalism vs creative capitalism), in his explanationof creative capitalism, Bill Gates does not in any way advocate for state ownership ofmajor industries, the elimination or weakening of the right of private propertyownership, or the elimination or weakening of the right of citizens to negotiatecontracts. While Gates does not encourage enhanced government regulation orsupervision of the economy (he does, however, emphasize governments traditional roleof providing basic public health, education and physical infrastructure services foundin the developed world), he does advocate for national governments to utilize creativefinancial and programmatic incentives encouraging creative corporate solutions for

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alleviating poverty in the developing world. Lastly, Gates is an avid proponent ofdemocracy, recognizing the freedoms, both personal and economic, which it brings tothe citizens of countries having adopted this political system. In general, Gates visionof twenty-first century creative capitalism does no more than ever so modestly impingeon one of the essential elements of modern day capitalism, i.e. government direction ofmarkets through the deployment of public incentives.

III. Global corporate citizenship and creative capitalismIn Gates follow-up Question-and-Answer session to his speech in Davos,Switzerland, Klaus Schwab, founder of the World Economic Forum, and no doubt astrong influence on Gates thinking, compared creative capitalism to the concept ofglobal corporate citizenship, a term which entered the corporate social responsibility(CSR) lexicon in the late 1990s. James E. Post (2000, p. 8), of Boston Universitys Schoolof Management, offers the following definition:

Global corporate citizenship is the process of identifying, analyzing, and responding to thecompanys social, political, and economic responsibilities as defined through law and publicpolicy, stakeholder expectations, and voluntary acts flowing from corporate values andbusiness strategies. Corporate citizenship involves actual results (what corporations do) andthe processes through which they are achieved (how they do it).

Schwab (2008, p. 108) adds further context to Posts (2000) definition of globalcorporate citizenship:

It [global corporate citizenship] expresses the conviction that companies not only must beengaged with their stakeholders but are themselves stakeholders alongside governments andcivil society. International business leaders must fully commit to sustainable development andaddress paramount global challenges, including climate change, the provision of publichealth care, energy conservation, and the management of resources, particularly water.Because these global issues increasingly impact business, not to engage with them can hurtthe bottom line. Because global citizenship is in a corporations enlightened self-interest, it issustainable. Addressing global issues can be good for both the corporation and for society ata time of increasing globalization and diminishing state influence [emphasis added].

According to Waddock (2003, p. 4), corporate citizenship, I believe, is at the core ofcompanies reputations, and the ways in which stakeholders are served. Gardberg andFombrun (2006) argue that corporate citizenship programs can create intangibleassets having value, including a good reputation, trusting relationships, or customerloyalty. Furthermore, these corporate citizenship activities help create legitimacy,

Figure 1.A comparison of theessential elements ofcapitalism vs creativecapitalism

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reputation, and competitive advantage for the MNC. Gardberg and Fombrun (2006)argue that a company can choose a configuration of citizenship activities, thereforecreating a citizenship profile matching the environment in which the firm operates.According to The Economist (2008a), companies are having to work harder to protecttheir reputation and, by extension, the environment in which they do business. Inconclusion, Gardberg and Fombrun (2006) believe that companies whose citizenshipprofile best meets public expectations are most likely to benefit from strategicinvestments in corporate citizenship.

In recent years, business scholars have begun formally studying the managerialimplementation of the corporate citizenship concept. Based on their extensive studiesof hundreds of corporations, Mirvis and Googins (2006), of the Center for CorporateCitizenship, Boston College, have proposed a five-stage model describing theorganizational evolution of corporate citizenship in the firm (see Table I, Stages ofcorporate citizenship): Stage 1, Elementary, is episodic and such programs areunderdeveloped; Stage 2, Engaged, where executive management wakes up andembraces a new outlook on their companys role in society; Stage 3, Innovative,whereby management deepens its corporate citizenship agenda as top executivesassumes more of a stewardship role; Stage 4, Integrated, involving an attempt tointegrate citizenship from top-to-bottom and throughout its businesses; and Stage 5,Transformative, with the strategic intent of management to create new markets byfusing their citizenship and business agenda. This model involves seven dimensionsof corporate citizenship, including definition and actions making up of corporatecitizenship; strategic intent (purpose and intended achievements); degree of leadershipsupport; organizational structure of the corporate citizenship function; issuemanagement response of the firm; level of stakeholder engagement by the firm; and

Table I.Stages of corporate

citizenship

Stage 1Elementary

Stage 2Engaged

Stage 3Innovative

Stage 4Integrated

Stage 5Transforming

Corporatecitizenship

Jobs, profitsand taxes

Philanthropy,environmentalprotection

Stakeholdermanagement

Sustainabilityor triplebottom line

Change thegame

Strategicintent

Legalcompliance

License tooperate

Businesscase

Valueproposition

Marketcreation orsocial change

Leadership Lip service,out of touch

Supporter, inthe loop

Steward, ontop of it

Champion, infront of it

Visionary,ahead of thepack

Structure Marginal:staff driven

Functionalownership

Cross-functionalcoordination

Organizationalalignment

Mainstreambusinessdriven

Issuesmanagement

Defensive Reactivepolicies

Responsive,programs

Pro-Active,systems

Defining

Stakeholderrelationships

Unilateral Interactive Mutualinfluence

Partnership Multi-organizationalliances

Transparency Flankprotection

Publicrelations

Publicreporting

Assurance Full disclosure

Source: Mirvis and Googins (2006, p. 108)

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public performance transparency, all of which vary at each stage of development, frombasic (elementary) through to advanced (transforming).

According to the Mirvis and Googins (2006) model, companies which embrace thecorporate citizenship concept engage in increasingly complex and sophisticatedpatterns of organizational activity as they progress through each stage of the model.From a managerial perspective, this recently developed model can provide valuableinsight into the level of resource commitment required of firms contemplatingembracing creative capitalism. Therefore, given the availability of this evaluativeframework by Mirvis and Googins (2006), where does Gates vision of creativecapitalism fit into its five-stage model of corporate citizenship (see Table I)?

As it pertains to the corporate citizenship concept, Gates is quite clear in hisintentions: he is committed to changing the game of MNCs by transforming theirmanagerial mindset so they will now recognize the profit potential of untapped marketsin developing countries (Stage 5). This transforming view of corporate citizenshiptranslates into a strategic intent on developing new markets (being innovative andplacing creative resources, i.e. human resources, behind these business initiatives) builtupon an organizational value of caring for others. This market creating intent, whilebenefiting the company by enhancing corporate reputation, brand appeal to customersand attracting good people to an organization, results in social change, i.e. a reductionin world poverty and improvements in the everyday lives of hundreds of millions ofpeople in the developing world (Stage 5). Furthermore Gates emphasizes that CEOs willinitially have to personally lead, to be the organizations champion behind theinitiatives supporting creative capitalism, if they are to be successful (Stage 4).

Creative capitalism, however, requires that the company choose a few businessinitiatives focused on meeting the unmet needs of consumers in developing countries.These business initiatives must, however, reflect the firms core competencies and aredriven by business opportunities and performance standards (Stage 5). By default, it ishighly unlikely that a company which embraces the concept of creative capitalismwould be operating at lower than a pro-active level of issues management (Stages 4and 5). When it comes to stakeholder relationships, Gates discusses the need for public-private partnerships (especially dealing with infrastructure problems, such astransportation systems, education and public health) and multi-organizationalalliances with major MNCs (the RED Campaign) and with NGOs, who can often help inthe delivery of educational information related to these corporate initiatives (Stages 4and 5). Lastly, Gates insists that transparency requires full company disclosure of whatbusiness initiatives they are undertaking related to markets in developing countriesand the boundaries, or limitations, of these organizational efforts (Stage 5).Furthermore, this is a necessary stage of corporate citizenship development to be in soas performance measurements can be created to accurately assess the success ofindividual corporate efforts, as well as to learn what business models work and canbecome industry practice. In conclusion, key attributes of creative capitalism for allseven dimensions of the corporate citizenship concept reside in advanced (complexand sophisticated) stages, specifically in either Stage 4 (Integrated) or Stage 5(Transforming) of the Mirvis and Googins (2006) five-stage model.

IV. Prospects for MNCs adopting creative capitalism as theircorporate governance modelGates challenge to MNCs executives to embrace and act on creative capitalismrecognizes the usefulness of national governments in addressing some of the tougher

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problems of education, infrastructure, nutrition and medicine but with the importantcaveat of where theres good governance. Yet we know that market-based economicsystems can operate in less than Jeffersonian democracies. While there is still debateover the direction of causality between economic freedom and democracy, the positiverelationship remains undeniable (Kim, 2008). As Harvard University economist RobertBarro (1996, p. 11) argues:

[. . .] the more advancedWestern countries would contribute more to the welfare of poor nationsby exporting their economic systems, notably property rights and free markets, rather thantheir political systems, which typically developed after reasonable standards of living had beenattained. If economic freedom can be established in a poor country, then growth would beencouraged, and the country would tend to becomemore democratic on its own.

To some extent, Gates recognizes that where there is less than good governance, aeuphemism for corrupt and incompetent political regimes, MNCs can still positivelyaffect the lives of the worlds poor by providing the basic services and products whichthe governments of many developing countries have failed in their sovereign charge. Infact, this deficiency in competent governance is what Schwab (2008) refers to assymptomatic of diminishing state influence to adequately perform for its citizenry.Due to attitude changes on the part of business and NGOs, the partnerships developedbetween MNCs and NGOs will, in many instances, provide the supply chain fordistribution of these firm-generated goods and services what Brugmann andPrahalad (2007) call co-creating businesses and what Porter and Kramer (2006) callshared value creation activities directly to the poorest citizens in the worldsdeveloping countries. Brugmann and Prahalad (2007, p. 82) argue that:

. . . [A]s their interests and capabilities converge, these corporations and NGOs are togethercreating innovative business models that are helping to grow new markets at the bottom ofthe period and niche segments in mature markets. These models, we believe, will lead to novelframeworks that can renew the corporations social legitimacy even as they allow forsustainable development and accelerate the eradication of poverty.

For Gates, waiting for democratic freedoms to arrive is no longer an option; he believesthat where there are economic freedoms in the developing world, they shouldbe exploited by MNCs and their increasingly willing partners, global NGOs. Heemphatically believes that multinational CEOs can provide the pro-active leadership totake advantage of those economic freedomswhich exist in poorly governed countries.

While Gates is reported to have hated economist William Easterlys book, TheWhite Mans Burden, in which the New York University professor found littleevidence that developing countries benefitted from $2.3 trillion in foreign aid over theprevious five decades (Guth, 2008), he has borrowed from Easterlys book. ProfessorEasterly (2006) favorably regards a searcher, one who finds out what is demanded bythe consumer and attempts to meet it, which Gates defines in creative capitalism as theMNC, versus the excoriated planner who determines what to supply, which wouldinclude such supranational agencies as the World Bank and the International MonetaryFund. Yet, as Prahalad and Hammond (2002, p. 51) point out, these searchers, theMNCs, cannot ignore the fact that though they may each be earning the equivalent ofless than $2,000 a year, the people at the bottom of the pyramid make up a colossalmarket 4 billion strong the vast majority of the worlds population, a new growthmarket, and rather than saving for a rainy day, they spend their income on things theycan get now that improve the quality of their lives (Prahalad and Hammond, 2002, p. 50).

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What are the arguments for MNCs to seriously consider embracing creativecapitalism as governance model? One reason can be found in the results of a February2007 McKinsey & Co. survey of 391 CEOs whose companies are active participants inthe United Nations Global Compact, a voluntary initiative established in 2000 whichencourages companies to adopt ten principles outlining sustainable and sociallyresponsible business practices and publicly report on their performance against them(Bielak et al., 2007). According to 95 percent of the CEOs surveyed by McKinsey & Co.,society now has greater expectations that companies will assume traditionally publicresponsibilities than it did five years ago, and more than half of these CEOs predict thatthese expectations would increase significantly during the next five years. While thisgroup of CEOs is pre-disposed to the concept of global corporate citizenship (based ontheir active participation in the United Nations Global Compact), nevertheless there is anoverwhelming conclusion reached: that societal expectations are expanding the scope ofproducts and services which corporations provide to meet an unmet demand of thecitizen-consumer, and thus reflecting further privatization of traditionally publicproducts and services. This conclusion fits in well with Schwabs (2008) conception ofglobal corporate citizenship as a long-term, sustainable investment: Since companiesdepend on global development, which in turn relies on stability and increased prosperity,it is in their direct interest to help improve the state of the world. How these MNCsimprove the state of the world is where Gates creative capitalism (coupled with theacademic guidance of a select group of management scholars) enters the MNC decision-making calculus to address the needs of the worlds two billion poorest people.

As The Economist (2008b) notes: Like most industries, the corporate responsibilitybusiness has a handful of leaders, a large number of followers and many laggards.According to Harvard Business Schools competitive strategy guru Michael Porter,despite a surge of interest in CSR, in most cases it remains too unfocused, too shotgun,too many supporting someones pet project, with no real connection to the business(The Economist, 2008a). However, as a response to these weaknesses in theimplementation of CSR, Porter and Kramer (2006) argue that corporations mustembrace a strategy that applies the same business principles to their relationship withsociety as they apply to their relationships with customers and competitors. Theirapproach, which they call Strategic CSR,

[. . .] moves beyond good corporate citizenship and mitigating harmful value chain impacts tomount a small number of initiatives whose social and business benefits are large anddistinctive. Strategic CSR involves both inside-out and outside-in dimensions working intandem. It is here that the opportunities for shared value truly lie. Many opportunities topioneer innovations to benefit both society and a companys own competitiveness can arise ina companys product offering and value chain. (Porter and Kramer, 2006, p. 88)

As can be seen in Table II (Corporate Involvement in Society: A Strategic Approach),Responsive CSR represents a corporate social agenda which mitigates harm fromcompany value chain activities to society; in contrast, the Table II section whichrepresents Strategic CSR is transformative (and not reactive) for company value chainactivities which simultaneously advances benefits to society while reinforcing the firmscompetitive strategy. Strategic CSR is built on the premise that company managementselects an explicit and affirmative social issue agenda which, while responsive toreasonable stakeholder demands, intersects with its particular business, as a significantportion of corporate resources and managerial focus is committed to this agenda. ThePorter and Kramers Strategic CSR approach mirrors and underscores the creative

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capitalism corporate governance approach. Furthermore, from an organizationalinfrastructure perspective, to address those at the bottom of the pyramid, Prahalad andHart (2002, p. 12) recommend that MNCs:

. build a local (host country) base of political support;

. reorient R&D to focus on the needs of the poorest;

. form new alliances with host country organizations;

. increase employment opportunities for these targeted consumers; and

. re-invent cost structures.

In his book The Fortune at the Bottom of the Pyramid, Prahalad (2004) requires MNCexecutives to change their long-held beliefs and assumptions regarding the developingworld, i.e. viewing these people (at the bottom of the pyramid) as victims or burdensto be pitied. For example, instead of using the accepted metric of gross domesticproduct (GDP) as the measure of national economic activity, Prahalad andBhattacharyya (2008) recommend a more accurate conversion measure, purchasingpower parity (PPP), which is based on a comparison of the prices of a typical basket ofgoods in different markets. Using PPP dollars as an alternative economic measure,which represents the purchasing power of consumers in that local market, Prahaladand Bhattacharyya (2008) report that the economies of the developing world areforecasted to grow at more than 5 percent per year, twice the rate forecasted for thedeveloping world. Moreover, Prahalad (2004) argues that these developing worldconsumers are not necessarily difficult to reach, are very brand-conscious, and areincreasingly connected (and open) to state-of-the art telecommunications technology,such as cell phones, televisions and personal computers. To meet these new marketgrowth opportunities within a Strategic CSR approach, Prahalad (2004) identifies abuilding blocks innovation framework (see Figure 2 The bottom of the pyramid: 12principles of innovation) for MNCs to create innovative products and services for theworlds poorest consumers in developing countries.

Prahalad and Bhattacharyya (2008) further recommend that MNCs adopt agateway-hub structure of market penetration, a third alternative to centralization orde-centralization of operations and an answer to the tension which exists betweenglobal integration and local responsiveness. The gateway-hub structure involves 20countries ten in the developed world and ten in the developing world which takentogether represent, respectively, established and most promising gateways to 80percent of the worlds economic activity and 70 percent of its 6.6 billion inhabitants

Table II.Corporate involvementin society: a strategic

approach

Generic social impacts Value chain social impactsSocial dimensions of competitivecontext

Good citizenship Mitigate harm from value chainactivities

Strategic philanthropy thatleverages capabilities to improvesalient area of competitivecontext

Responsive CSR Transform value chain activitiesto benefit society whilereinforcing strategy

Strategic CSR

Source: Porter and Kramer (2006, p. 89)

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(including many at the bottom of the pyramid). Moreover, Vachani and Smith (2008)offer three creative, market-based alternative distribution strategies for reaching therural poor in developing countries identified by Prahalad and Hammond (2002) as acritical barrier (for doing business) to breach: the first, taking cost out, therebylowering the cost of distribution; the second, reinventing the distribution channelby embracing innovative technologies and business process re-design, which offeradditional routes to meeting rural consumer demand; and third, taking the long-termview and having companies invest for the future, therefore anticipating a longer periodof payback and/or as a social commitment of the firm.

V. Summary and conclusionsAfter Bill Gates announced his call for a creative capitalism, it did garner negativeresponses from many who were not attending in Davos, Switzerland. For example,conservative economics commentator Larry Kudlow (2008) remarked that Gates afterhe got rich in the process . . . is now trashing capitalism and telling us it doesnt work.According to Kudlow, Gates should blame the absence of capitalist principles [inAfrica], not capitalism itself. Even the most compassionate corporate executives arenot going to bring prosperity to impoverished countries with statist economies. But, asevaluated in this paper, Gates criticism of modern capitalism focuses on his impatiencewith it operating to its potential (as he personally knows of the systems capabilities) not his condemnation of this socio-economic system.

Is creative capitalism a radical approach to interpreting capitalism? Not accordingto Gates explanation of the concept. When compared to the essential components ofcapitalism and the expansion of government interference in the marketplace, creativecapitalism does little more than advocate for national governments to offer financialand related incentives encouraging corporations to develop innovative solutions foralleviating poverty. According to Gates, creative capitalism meets the requirementsof making profits, enhancing corporate reputation (which appeals to customers), and

Figure 2.The bottom of thepyramid: 12 principlesof innovation

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attracts good people to work for the corporation. What Gates wants MNC executives todo is spend enough time studying the needs and requirements of that (developing world)market or be a searcher who finds out what consumer demand is and meet it. This ischanging the game for corporate citizenship transforming value chain activities toboth benefit the corporation and transform society. But in line with transforming valuechain activities, Gates emphasizes that MNCs should limit themselves to initially one, orat most a few projects, which are tied directly the to core competencies of the firm.

While Gates has been influenced by C.K. Prahalads writings on market opportunitiesamong the worlds poorest consumers, he does not go as far as Prahalad in heralding hisdeveloping market forecasts for MNCs. While Gates focuses on the bottom two billion ofthe worlds poorest consumers, he does not emphasize a fortune at the bottom of thepyramid, but profit opportunities available to MNCs. Professor Aneel Karnani (2007), ofthe University of Michigan, Ross School of Business, has called Prahalads bottom of thepyramid proposition logically flawed and inconsistent with the evidence. According toKarnani (2007), Prahalads (2004) claim of a potential bottom of the pyramid PPP of$13 trillion grossly exaggerates this market. For an MNC operating in a developingcountry, profits are repatriated at the financial exchange rate, not the PPP, resulting in aglobal bottom of the pyramid market of less than $0.3 trillion. Furthermore, Karnani(2007) argues that this market is small, geographically dispersed, and unlikely to beprofitable for a large MNC. With the poor spending nearly 80 percent of their limitedincome on the necessities of food, clothing and fuel, it leaves little room for thepurchasing power needed to acquire brand name luxury goods. Nevertheless, Jaiswal(2008) argues that the poor need to be viewed as consumers for two important reasons:the first reason, so that MNCs can offer products at a lower cost (saving themmoney) andwith greater value, and the second reason, that MNCs can offer them welfare-orientedgoods and services, e.g. agricultural inputs enhancing productivity and insurance andmicro-finance. Karnani (2007) recommends that the best way for MNCs to help eradicatepoverty is for them to invest in upgrading the skill sets and productivity of the poor andhelp create more local employment opportunities. This recommendation could beconstrued as a broad interpretation of the concept of foreign direct investment certainlynot a policy recommendation which could not comfortably fit within Gates concept ofcreative capitalism.

Notwithstanding the legitimate criticisms of an overselling of the fortune at thebottom of the pyramid, Gates has challenged MNCs to do more of what they do best search for what consumers demand. Coupled with increasing stakeholder expectationsof MNCs, he has purposely limited what he wants from them to focus their innovativecapabilities on finding a profitable, unmet opportunity related to core competenciesand provide needed products and services to these impoverished consumers. Together,these MNCs, with their NGO and government partners, can have a positive impact onalleviating global poverty. Yet, one cannot help but think that Karnani (2007) is correctin the long-run: poverty is best alleviated when the indigenous population possessesmarketable skills which can then be productively applied in newly established localbusinesses. As Garrett (2007, p. 22) notes in her recent opinion piece:

True creative capitalism would envision the formation of similarly efficient, reliable, profit-making ventures for health supplies, medicines, delivery and insurance inside poor countries operated by indigenous companies, with profits forming the basis of taxable revenue growthfor the countries.

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Reflecting Karnanis (2007) development approach, Simanis et al. (2008) offer a Base ofthe Pyramid Protocol (BOP Protocol) for MNCs. This BOP Protocol presents a newinnovative business process model which includes both collective entrepreneurshipdevelopment and business enterprise co-creation between local communities andMNCs. The BOP Protocol reflects a shared goal of producing enduring value for thelocal income poor communities while building sustainable corporate growth andrenewal. Thus, both the Karnani (2007) and Simanis, Hart and Duke propositions offersvaluable guidance for those MNCs who can best focus their creative capitalism projectson a locally empowering, economic development theme.

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Corresponding authorThomas Hemphill can be contacted at: thomashe@umflint.edu

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