Corporate Social Responsibility, generic Development and the Tsunami

MHCi MONTHLY FEATURE:

January 2005

Business, CSR and the Tsunami: Time to re-think corporations and development?

[plus comments by Sir Geoffrey Chandler and Riva Krut]

By Michael Hopkins

Indian Ocean Tragedy – Generous contributions

The devastation and misery caused by the sudden, massive inundations of the Indian Ocean Tsunami have touched us all and millions of people around the world have spontaneously made huge donations in order to make immediate relief possible.

Not only have private individuals put their hands into their pockets, but corporations and governments have made donations on a very large scale. What is remarkable is how quickly so much aid has been made available. This Special Monthly Feature is about the wider and ever present issue of development, but this does in no way belittle or undermine the real human generosity that this terrible disaster has brought forth. Individuals have contributed heavily – $US190mn alone from the UK.

Nearly $200 million has been donated so far by corporations in the USA, according to a running tally on the Web site of The Chronicle of Philanthropy trade newspaper. While most have donated cash from corporate contributions and employee-matching programs, others have pledged needed supplies such as prescription drugs and bottled water.

For example, Pfizer said it would donate $10 million and about $25 million in drugs, and Islandia-based Computer Associates said it had pledged $650,000 via its “Matching Gifts Program,” in addition to an initial donation of $200,000. Manhattan-based Verizon said it had begun a matching program that had contributed about $1.9 million to relief efforts, roughly a third of which has come from employees.

In the UK, according to the London Evening Standard, about $US15mn has been contributed by corporations so far – $US3mn from the giant Swiss bank, UBS, which has set up a UBS Tsunami Relief Fund to bring together individual contributions from staff and clients worldwide. Vodafone Group will make a charitable donation of $US1.9million to support the rescue operation after the Asian Tsunami disaster. HSBC bank has contributed $US1m to the International Red Cross and International Red Crescent. Still looking at other ways in which it can help. British American Tobacco is rebuilding a village in Sri Lanka and its Indonesian staff are collecting funds. The oil giant BP is giving $3m and will also match contributions by staff.

But please do not forget about development

All these efforts are spontaneous and very well-meaning. But why is it that we must await a tragedy for anything to happen? The tragedies of poverty, disease and early death face huge numbers of people every day. The around 150,000 fatalities (and rising) from the Pacific tsunami, tragic though they most certainly are, are far, far less than the number of deaths every year from malaria:

· Maybe Two million people die annually of malaria, most of them children and most of them in Africa. It has been estimated that spending $2 billion to $3 billion on malaria might save more than one million lives a year

· The recent and tragic early death of Nelson Mandela’s son brings home that every month 240,000 will die of AIDS

· 140,000 will die of diarrhea..

As Nicholas Kristof of the New York Times remarked, the outpouring of aid, private and public, for the tsunami victims is wonderful. But, frankly, the affected nations will get all the money they can absorb for the moment, and Thailand, Indonesia and Sri Lanka are far from being the worst off countries in the world.

What many of us have been saying for decades is that money spent on development would be more usefully absorbed than emergency relief. The outpourings on emergencies ranging from Iraq to Darfur to the Congo to Colombia ranges in the tens of billions of US dollars. Yet, the United Nations Development Programme (UNDP) most important development agency of the UN, only receives (and spends) around half a billion dollars a year and that is spread around over 180 countries i.e. $US3million per country per year. Some countries receive even less – in the poorest country in Central America, Honduras, UNDP can only allocate about half a million dollars a year from its meager funds and even that is falling.

Recent news reports say that the Bush administration will take advantage of this year’s retirement of Wolfenson as President of the World Bank to appoint someone to concentrate upon infrastructure and less on the ‘soft’ but crucial development areas of education, training, health, job creation, rule of law, better governance etc. Development professionals will immediately see the ominous signs and, again, tear their hair on account of the failure of their warnings that big infrastructure projects tend to benefit the rich, increase corruption and do little to address the key needs of development.

Part of the answer to the understandable urge to help through charitable giving is that it clearly links what is given to what is received. The problem with development is that it takes decades before results can be seen. A dam is visible, a rebuilt town too, but development is not. It takes decades to set in place the slow process of development and yet, sometimes, only hours to destroy all that. The destruction can come, as we have seen in Asia, from natural forces and sometimes it is man made – to whit the human tragedies in Somalia, Iraq, Colombia, Congo, Zimbabwe, Sudan. In Somalia, for instance, the US generously sent in troops to assist the humanitarian agencies. However, when their mission became confused, as they fought the warlords, they rapidly withdrew leaving behind a country even more shambolic than when they went in.

Can CSR re-address the situation?

So how can the situation be re-addressed to prioritise development? There does seem to be a glimmer of hope from the rapidly growing field of CSR and from the greater involvement of companies in providing private funds for relief.

It is clear that the public agencies have failed. Failed, not in the sense that what they do is no good because that is far from the truth for instance UNDP has a magnificent record in development as many reports from its evaluation office show. No, failed in the sense that they have not convinced us and our governments to find enough funds for ongoing development rather than emergency disaster relief i.e. we seem ready to pour money into dealing with the failures of development policy but not with trying to reverse the failures.

So, can the fledgling CSR movement actually involve major companies in development? Actually, if we wish to crack the problem of under-development, ignorance and disease, corporations have to be involved in development. Governments have failed, there is hardly much of an alternative. Gordon Brown is pushing hard for a Marshall Plan for Africa. Excellent. But these ideas for developing countries have been around since the Marshall Plan itself – this helped reconstruct Germany.

The CSR model can definitely help corporations to do something about development. Business for Social Responsibility (BSR) in the United States has stated, sensibly, that ‘in the early stages of disaster relief, making financial contributions to reputable aid agencies is considered by relief professionals to be the most valuable and effective response. This article also concurs with the BSR when they state that ‘it is through the longer-term contribution of technical expertise, infrastructure (re)-development and economic investment that a company can make the most effective commitments, through which it also affirms its commitment to corporate social responsibility and sustainable development.’

Corporations, therefore, bearing in mind the problems of absorption of the massive aid that is coming on stream right now, could start diverting their emergency contributions into development funds. Remember the good that Ford did through the establishment of the Ford Foundation, and Rockefeller through his Rockefeller Foundation. These are still small compared with the massive development problems that exist.

A key problem is that corporations contribute but no-one is coordinating their efforts and, of course, the goal of corporations is shareholder satisfaction not picking up the pieces when Governments fail.

So how can CSR have a positive effect on development and poverty alleviation?

CSR is a good thing in itself since, among many things, it leads to better treatment of stakeholders from improved codes of ethics, better conditions for employees, allows the concerns of local communities to be considered and prevents damage to the environment.. It also leads to increased allocations to philanthropic causes. However, the direct impact of corporations on alleviating poverty, and remember I am talking about large corporations and not the ‘private sector’, is likely to be marginal on the supply side. This is because:

· Poor people don’t work for corporations

· Corporations do not create many jobs – even the largest corporations only employ about 100,000 to 200,000 compared to a world labour force of 2 to 3 billion

· Suppliers to corporations tend to be high tech. and do not employ poor people in general

· Philanthropy, however well-meaning, can sometimes hinder rather than support development

On the demand side there is more that corporations can do. They can:

· Make sure that products and production processes are safe

· Ensure a pricing policy that poor people can afford (AIDS drugs are an obvious example)

· Respect the environment

· Have a philanthropic policy that focuses upon development and anti-poverty measures

· Work with the authorities and international organizations to ensure democratic environments, peace, lack of corruption, reduced bureaucracy and anti-discrimination

Concluding remarks: A five point plan for corporate giving

So what could corporations do to emphasise their social responsibilities and make a real far-sighted contribution? I suggest a five point plan for consideration by every major corporation – this alone could easily raise $US50bn a year and eradicate malaria, turn around AIDS, let every child go to school, reduce poverty by half – in fact many of the things that the UN Millenium Goals have identified.

These five points could be:

1. ‘Dollar for Development’ For each dollar given by Governments for development, a dollar is contributed by corporations.
2. Corporations don’t know much about development so need to partner with someone who does, I suggest the United Nations either via the existing UN Global Compact or, better still, directly with the development professionals UNDP.
3. Corporations should rethink their philanthropic activities and make them consistent with CSR.
4. Corporations could harness the tremendous and impressive leap in sympathy and generosity stemming from the tsunami disaster to make clear plans for future development contributions.
5. Corporations to take a longer term view of their place in society by appointing a permanent position to manage a corporation’s contribution to development.

[Thanks to comments on an earlier draft to Ivor Hopkins and Joyce Mitchell]

Sir Geoffrey Chandler writes:

Dear Michael,

As always, I read your monthly feature with great interest. With much of it
I agree. I do, however, wonder if the ‘dollar for dollar’ idea is
realistic. Who co-ordinates the corporate giving? How do companies plan, given the
vagaries and discontinuities of goverment action? Given, as you rightly
stress, the long-term nature of development, how long would this arrangement
continue? Perhaps you are in fact advocating a higher corporation tax which would
spread the ‘dollar for dollar’ equitably over the corporate sector and allow
no backsliding!

I infer that our definitions of CSR may remain at variance. I think
companies would make a far greater impact on development by adhering to principle in
their treatment of stakeholders, rather than in philanthropy. The first
will be inherent in what they do; the second will vary with a company’s economic
fortunes. Of course philanthropy will be a part of CSR, but, as you
rightly say, it should be allied to development agencies which have the appropriate
skills. I’m surprised you don’t mention the developmental NGOs as potential
partners which may in some cases be more appropriate that the UN bodies you
cite.

I would also question some of your premises. “Poor people don’t work for
companies”. They certainly do. Look at the supermarket and consumer goods
industries’ supply chains. Look at football stitching and carpet making and the
whole fashion and clothing industry.
“Corporations do not create many jobs”. Again, look at supply chains. We
simply don’t know how many jobs are created and sustained in the many thousand
supply points for the Tescos etc of this world. The best anti-poverty
measure would be the living wage called for in SA8000 and other such guidelines.
And of course these suppliers are not ‘hi tech’. Quite the opposite.

But it’s always fun to be stirred up. So thank you.

Best wishes.

Geoffrey.

Riva Krut writes:

— glad to get your response, my view is that if there is an international standard for private sector flows to development, then let’s use that as a benchmark or platform for benchmark instead of starting something new
— below is a slightly longer piece that may reference the comments about inadequate corporate responses in UK and Australia.
— among your ideas, I REALLY liked the idea of TNCs having a designated person to deal with development assistance

Understanding Corporate Social Responsibility after the 2004 Pacific Tsunami: an argument for a financial target for TNC contributions

Riva Krut

The Tsunami disaster surely presents the corporate world with an excellent chance to display its corporate social responsibility (CSR). As so many leading firms seek to define what CSR means and how they are making this part of their mission and practices, here is a perfect opportunity for transnational corporations (TNCs) to walk the talk and do something to help. An existing intergovernmental benchmark would indicate that global firms should allocate 0.03 percent of their profits to international development assistance – surely a subset of global CSR. If we apply this standard to the leading 500 TNCs in the world (Fortune Magazine 2004 Global 500 list) they would provide a pool of $13.37 billion for CSR.

A numeric benchmark for corporate CSR in the developing world

The question is, how much aid should be expected from the corporate sector? Currently there is no answer to this in the CSR community. Choices about how a firm defines CSR is left to corporate initiative and creativity, but the content and levels of commitment remain at the discretion of the firm. The GRI Guidelines define what a firm might measure, but not what its performance floor or ceiling might be. However, an agreed numeric benchmark or standard for CSR might help leading CSR actors to demonstrate the level of their contributions to development. It would also provide a benchmark against which all stakeholders could measure corporate contributions to CSR.

In fact, a private sector benchmark for international development assistance does exist and could be reinstated now as a standard for TNC voluntary corporate CSR. For global firms, international development assistance is a legitimate subset of their CSR initiatives. A benchmark for corporate development assistance could be used to determine not only that firms should respond, but by how much.

In the late 1950s when there was a series of efforts to establish public and private sector targets for Northern contributions to Southern development and to refine these targets by the source of the capital to meet the overall goal. When the question of global development assistance was first discussed in the 1960s, it was assumed that these would come from both governmental and private sector sources. The World Council of Churches originally advanced the idea for a clear marker for development aid in 1958. Their proposal — one percent of GNP for development — was circulated to various United Nations delegations and adopted as benchmark by the General Assembly two years later (1960), recommended again by the first UN Conference on Trade and Development (1964), approved by the OECD Development Assistance Committee, and re-adopted by the Economic and Social Commission in 1966.

During this period, governments debated the share of the one percent development target that should come from official development assistance (the debate ranged from 0.5 to 0.8%) and the share that was to come from net resources transfers from private sector trade and investment in developing countries (the balance). In addition, discussion about one percent initially imagined this as a floor, but over time it became referred to as a target.

In the years that one percent for development was discussed, there was some useful thinking on how the corporate contribution would be counted, particularly for TNCs. In 1968 the definition of private capital for development was:

“Private capital on the basis of net long-term movements originating with residents of the capital-exporting countries; they are thus net of repatriation of principal, disinvestments and retirement of long-term loans, portfolio assets and commercial debt. They are not net of reserve flows of capital originating with residents of less-developed countries, nor of investment income”.

In 1970 the United Nations Committee for Development Planning (CDP) report grappled with income flows from the commercial sector. Recognizing in effect that the definition of net flows from the private sector had not figured in the recent policy debate, CDP recommended that: “A time seems to be coming for new measures and resources – both voluntary and tax-like-to be looked for and advanced by international community. In this respect, the following merit particular attention:

· Introduction of special contributions by multinational corporations operating in developing countries;

· Introduction of special taxes on consumption of a limited number of [luxury ] goods in all countries;

· Activating widely voluntary contributions by companies, public organizations and individuals, if necessary through provision of tax concessions.

The history of the General Assembly reveals that it never rescinded the private sector contribution. However, the private sector contribution became lost in debate and over time. It was replaced by the now better-known mantra of “0.7% for development”, which is a governmental target and which has no target for corporate contributions.

Obviously there are problems resurrecting concepts from thirty years ago, but Gleckman’s research does seem to provide a sound policy platform for the idea, and perhaps the time is now right to recover this history. To kick-start discussion, Gleckman proposes an initial range of activities that might be included in the calculation of 0.3% of net corporate income: “corporate philanthropy, released work time in developing countries, corporate educational and housing projects, inter-firm debt cancellations, socially conscious advertisements, cost of conforming to environmental, health and safety standards beyond that required by national law and the loss of income from discounted sales of socially needed products or services in developing countries.”

It is the view of the authors that it would be appropriate, in the post-Tsunami generation, to ask TNCs that have adopted CSR also adopt a target for their overall CSR activities and development assistance on the lines of the 0.3% of net income. The 500 largest global corporations in 2004 took a record $7.5 trillion in revenue and earned $445.6 billion in profit. If we take the 0.03% from corporate profits, this would allocate $13.37 billion for CSR. Are firms donating numbers close to this? Just to take the Australian corporate numbers, the 0.3% contribution from Australian firms for their total CSR work for, say 2005, would have a target of $90 million. Firms would need to decide how much of this should be allocated to Tsunami relief or to their other CSR activities. But the advantage of such a number is that it gives firms a hard number, a practical benchmark for CSR and a real basis to them partners with governments in dealing with global crises..