Sept 2005

By

Michael Hopkins
CEO, doctor MHC International Ltd.

‘You cant contribute much to sustainable development unless you ensure that your own business is sustainable. CSR is the way to a sustainable future..'[Michael Prideaux, look British American Tobacco, Speech at the World Tobacco Symposium, Kumming, China, 16^th November, 2004]

Preface

MHC International Ltd (MHCi) is looking at the role of CSR in the social and economic development of developing countries. This, the third part of a four part article, is based upon the author’s forthcoming book on the subject. The first two parts can be read from our website www.mhcinternational.com where we looked at Prahalad’s celebrated work on business and development in the Fortune at the Bottom of the Pyramid. In Part I, I described how I found his ideas wanting because of the lack of attention to all stakeholders (particularly the demand side stakeholders). In the second part I explored whether the notion of CSR could be a better concept with which to engage corporations in economic development. Here I look at what corporations could do in the development arena. In Part IV I shall look at how the UN has been promoting business involvement in meeting the Millennium Development Goals.

1. Main actions for companies involved in development

What are the main actions that Trans National Corporations (TNCs) could take to enhance development under a CSR framework? There are actions both within the TNC itself touching its internal stakeholders and actions outside of the TNC reaching toward its external stakeholders. Most, if not all, of a TNC’s actions affect development in some way. Some more than others, of course. For instance, good governance of a company written and applied in a code of conduct for boards of directors will impact on development more marginally than direct community level interventions. Although clearly, a company policy at board level to assist development would be no bad thing.

A TNC looking at its involvement in development could approach the issue in one or more of three main ways. It could:

1. Simply say that it is focusing on profit maximisation for its shareholders and claim that development is none of its business.

2. Work on a partial approach such as with the UN Global Compact and support that process

3. Engage fully with its stakeholders and explore options for furthering development efforts while ensuring that the actions it takes are fully in line with preserving shareholder value

The argument here is that the third approach is in the long-term interest of TNCs and, of course, is crucial for development to move faster than it has to date.

So, what could the key areas of TNC involvement in development be?

2. Development actions inside the company

1. The adoption of a fully-fledged approach to CSR within a company has a number of benefits. The demonstration effect of good internal CSR policies should not be forgotten even though these are indirect and hard to measure. CSR policies inside a company can be a lightning rod for other companies both in the location where the TNC is based as well as its overseas locations. CSR also makes good business sense in multifarious ways. For instance, consumers develop a higher degree of identification with companies having good policies and practices.

2. Companies which maintain environmental and health standards; propagate transparent business practices; protect human rights at the workplace; and work against corruption are widely respected and appear as more attractive to shareholders, reduce the possibility of industrial action and maintain a working environment that leads to higher worker productivity.

3. A strong anti-corruption culture needs to be built within the organisation through active support from the senior management. Today, anti-corruption is widely discussed both inside companies and in their dealings with the outside world. Companies, too, see the overwhelming advantages of good governance in the countries where they work overseas and, in particular, the advantages of working with a Government that is implementing anti-corruption policies. Much corruption occurs between external sources of finance and the host Government. Thus it takes two to tango on the anti-corruption front. The line between corruption and accepting small gifts or hospitality is sometimes blurred. On the larger stage, many companies are almost forced to pay bribes of kick-backs to win contracts. And this is not only the case in developing countries, industrialised countries have also not been blameless as we know with the Enron scandal, the Credit Lyonnais scandal affecting top Government officials in France, Volkswagen in Germany and so on. Even a single dubious payment can come back and haunt a company down the line. Just like payments to payments to blackmailers, once started the web of deceit and intrigue can be hard to break. Thus, each company should have a set of guidelines and business principles which must be followed by all staff. This code of conduct needs to be followed at all national and international offices which the company may have. Local business practices and culture must not influence or change the organisation guidelines. The system of internal communication and training has to be strengthened to keep all staff aware of the policies and principles.

4. Create a vision statement on how the TNC can (and does) assist in development. This does not mean simply listing a number of philanthropic activities that the company intends to carry out. Development requires careful thought on how, once an injection of funds has been made, development initiatives can be sustainable i.e. continue without the requirement for additional funds. Too often, company development initiatives have been dominated by generic global initiatives that are not tailored to suit specific circumstances.

3. Development Actions outside the company

1. Private Sector Participation for Poverty Alleviation: There is not an awful lot a company can do to reduce national poverty itself. However, working with National Governments to work out how best the private sector can stimulate economic growth for poor people is in the interest of both the Government and the company. In addition, public-private partnerships for tackling man-made or natural disasters can also speed-up reconstruction activities.

2. Improving people’s skills in a myriad of ways is undoubtedly the best way to create development. Education, training, skill development, capacity development are all aspects of the same issue – improving human skills. TNCs with their wealth of experience in in-house training, have an enormous amount to contribute. At mininum TNCs could be involved in national training policy to ensure the private sector needs are incorporated in Government training plans. It may be surprising to some but many Government training schemes in developing countries have little contact with private sector needs. TNCs can also set up, perhaps in partnership with others, courses and organisations to create sorely needed skills.

3. Small & Medium Sized Enterprises (SMEs) are where most new employment occurs in developing countries. TNCs have a role to play either directly through assisting SMEs to improve their management, marketing, technological and financial skills. Or indirectly through ensuring that SMEs as suppliers are not subject to complex contractual paperwork and, once hired, are paid rapidly.

4. Helping people to help themselves is a key mantra to encourage development (or to use current jargon and what means the same thing – sustainable development). Assisting budding entrepreneurs, or even existing ones through mentoring can help launch new businesses, improve existing ones or even assist Government departments to improve their efficiency.

5. Essential, of course, is to invest in developing countries and work toward allowing their exports to be freely imported into the rich countries – a huge and controversial issue that will play out for many decades to come. Will not these new imports hurt local markets in industrialised countries where the TNCs are located and many of their staff? Again, an issue that is being discussed vigorously in the development literature right now. The author’s view is that the rich countries will innovate quicker than the LDCs simply because of their higher level of skills and continue to move into brain intensive knowledge industries. As the LDCs start to move into these markets too, the economic growth that is being created will allow room for many and there is no particular reason for unemployment to rise drastically, but that is another story.

6. To many, CSR is simply working with the local community. Clearly, improving local conditions is in the interest of TNCs to enhance reputation and preserve harmony. Assistance to local communities can also help to improve purchasing power that leads to an expansion in the market size. But these actions are not as easy as they seem on the surface. Three questions not easily answered are: Where does the role of the TNC start and stop vis a vis the local community? What are the key issues to be involved in? Should TNCs be involved in human rights and, if so as many think, what are the limits?

7. Philanthropy has always been a big part of TNCs actions in LDCs. But few philanthropic actions are sustainable – not to be confused with environmental sustainability – in the sense of once the project has finished will the project and its related activities contine? As discussed in a previous Monthly Feature (see www.mhcinternational.com on CSR and philanthropy) I am very skeptical of philanthropic activities. The test of a ‘philanthropic’ project is that the intervention must lead, as far as can be judged, to a sustainable i.e. developmental result.

8. Development assistance is key in many countries. This would best be done with existing development agencies such as the UNDP who have vast experience in development. Clearly, TNCs should not replace the UN nor Government’s own efforts. Simply, the power and wealth of TNCs needs to be harnessed in positive development efforts. Should these efforts be in addition to the taxes that TNCs pay anyway? There is no easy answer. But many taxes that TNCs pay in developing countries are misused. A democratic Government will tend to use tax revenue in ways that benefit its elecorate so as to ensure re-election next time around. Yet most Governments in developing countries are not democratic. So should TNCs be involved in those countries and, if so, what should they do exactly? First, TNCs should evaluate their position based on existing relations with the Government. Clearly, if a host Government simply says how we use your taxes is none of your business then the TNC can decide whether to stay or leave. Second, where possible the TNC can, at least, assist the Government in ensuring that tax revenue is used effectively to promote development. TNCs have vast expereince in tax issues and could well lend some of this experience to develop capacity (better governance) within Government. Third, when TNCs carry out their own development projects these should draw upon the development experience available in NGOs and local UN offices such as the UNDP. Fourth, TNCs are not the Government and obviously cannot, nor should not, carry out the major programmes of the Government such as education, health, security or employment systems. But TNCs can be involved as an agent of positive change through lending their expertise to improving efficiency in Government programme delivery. Fifth, if more than one TNC is involved in a developing country they should work together to ensure increased efficiency of development programmes in the host country.

To conclude, in a nutshell what could a ten point programme for TNCs involved in developing countries (and just about all TNCs are involved either directly of indirectly) be?

4. Action programme inside the company

1. Develop a CSR strategy that includes an overall vision for the company’s place in development. Decide what benefits and costs emanate from involvement in international initiatives such as the UN Global Compact, SA8000, ISO9000 etc.

2. Investigate whether the company is paying a ‘living wage’ within the company and that it is paying its main suppliers properly and on time. If not, why not and then ask what steps should be taken to move toward this

3. Work with trade unions to ensure proper environmental and safety regimes within the company.

4. Monitor and evaluate the company’s anti-corruption policy on a regular basis.

5. Action programme outside the company

5. Work with the Government in host country to see how the Government’s anti-policy policy can be enhanced. Work with local UN and NGO organisations to increase efficiency of development initiatives, including ensuring its tax contributions are used wisely.

6. Be pro-active in lending in-house training skills to a wider public.

7. Assist the creation and improvement of SMEs through the setting up of an advisory office and/or joining with other private sector or NGO partners.

8. Be involved in mentoring budding entrepreneurs.

9. Invest so as to support wider development objectives of host country.

10. Ensure community or philanthropic company initiatives are sustainable in the development sense.

[Contributed by Michael Hopkins with comments by Ivor Hopkins]