PSD Blog - The World Bank Group

A collective need to rebuild public trust

The global economic crisis revealed large scale fraud in the financial sector (witness the Madoff scandal, among others). Unsurprisingly, it  has prompted widespread decline in public trust in companies. The Financial Times / Harris Poll released last month suggests three-quarters of people in the US and Europe now have a worse opinion of business.

It is practically impossible for a single stakeholder on their own to effectively address the problems that contributed to this crisis: corruption, greed, a lack of transparency and leadership. Hence there is a case for collective action that enables companies to collaborate with competitors and/or stakeholders from the public and civil society sector to create and maintain fair market conditions. Recognizing this, the World Bank Institute is organizing an Executive Development Program Fighting Corruption through Collective Action in Today’s Competitive Marketplaces precisely on such joint approaches.

CSR++ for agribusiness

Participants from the length of the agribusiness value chain are gathered at the Bank this week for the World Bank Institute’s new Executive Program on Inclusive Agribusiness: Fighting Poverty, Hunger and Malnutrition. Chris Delgado and John Lamb from the Bank’s Agriculture and Rural Development team set the scene on Tuesday morning by laying out the scale and complexity of the challenge facing the food sector. It was not a pretty picture.

Yet as Professor Ray Goldberg of Harvard noted, people sign up for a program like this as they want to do something, and the food crisis offers an opportunity to push for change – “we are in the middle of a revolution” in the food system. Large-scale agribusiness has a lot to gain and to lose, so the incentive is there for companies to engage even when many of the topics from access to land to ensuring affordable food supplies are inherently political. Collective action is needed and the challenge was issued for firms to envision what enhanced corporate responsibility "CSR ++" might look like in the sector. Will they get there? We will see where they stand at the end of the course.

Legislating for doing good

While the financial and economic crisis has prompted much soul searching on the appropriate government and business boundaries and the right balance of regulation, it will be interesting to see how this filters down to emerging markets such as India and China -even at the local level there are now efforts to legislate for corporate responsibility.

In China the focus to date has mostly targeted clarifying and increasing standards in production – see CSR Asia’s report on labor standards being tested in Yiwu City. This makes sense when companies are reliant on export markets sensitive to such issues, but as exports decline and consumers focus even more on price savings, the momentum may be sucked from such efforts.

In India, the states of Gujarat and Karnataka exemplify an alternative approach. They are considering legislation to make CSR mandatory via required funding of social projects. As reported in Indian Express, Gujarat already requires public enterprises to use 30% of profits before tax for social initiatives. It is now set for extension to private firms.

Necessity or luxury?

The debate on the fate of corporate responsibility initiatives in the economic slowdown is already underway in a range of general business and specialist publications. It is falling into predictable lines. Friedmanites brand CSR as a dangerous distraction and an unaffordable luxury in these parsimonious times. Advocates suggest that is was precisely a failure to meet core responsibilities that helped create the current crisis, and so rebuilding public trust through responsible approaches is all the more important.

My own take matches that of Dave Stangis on the Intel CSR blog. While his comments precede the full blown economic crisis, the points still apply. CSR is no product line to be dropped at will, but part of the way you do business. One would hope sustainable firms have a model that is as recession proof as any other.

Economic silver lining at the base of the pyramid?

It will be intriguing to see how the global economic crisis impacts firms operating at the base of the pyramid. The slowdown suggests that the poor may have even less to spend – the World Bank's Global Economic Prospects forecasts 2009 growth at just 4.5% in developing countries and a recent CGAP discussion highlighted an already visible decline in remittances.

It is possible that multinationals may draw back on investment in low income markets and there are signs of strains on microfinance availability. This might suggest a contraction for BoP markets, and for those seeking to tap new wealth in emerging markets it clearly raises problems. Bloomberg reports India car sales declined 19% last month, the most in more than 5 years. Yet the poor will always spend a high proportion of their income by necessity and this is likely to be supplemented by middle class consumers moving downmarket.

Real Simple Reporting, continued: Can web 2.0 help companies report on their performance?

I recently ventured that "real simple reporting" could be the killer app for development 2.0. At that time, I had project reporting to donors in mind. But what about corporate social responsibility and sustainability reporting: Is there a role for web 2.0 there?

Simplicity, if we are to listen to the HBS folks, is what will drive the success of social media applications. They call for companies to develop "a dashboard of simplicity that is open to the whole Internet." As if heeding that call, Sun Microsystems recently launched a revamped version of OpenEco.org, a collaborative platform that allows companies to track their greenhouse gas emissions and, interestingly, develop a "top-level organization dashboard where users can track a broad spectrum of emission sources to provide a comprehensive view of an organization's carbon footprint." What is the incentive for companies to use this tool as opposed to (or as a complement to) their own internal reporting processes?

Gender and Business Performance: Compliance vs. Voluntary Reporting?

On Tuesday, Calvert mutual funds released a report entitled “Examining the Cracks in the Ceiling: A Survey of Corporate Diversity Practices in the Calvert Social Index." It spells out the business case for gender diversity and family-friendly benefits. Surveys included in the report indicate that:

• 79% of female consumers surveyed by the Women's Business Enterprise National Council in 2007 stated that "knowing a company purchases from women-owned businesses would compel them to try the product or services from that company, even if they were not a current customer."
• 81% of female respondents noted that "awareness of a company’s mission to buy from women-owned businesses would moderately or significantly solidify their brand loyalty".
• "Costs associated with employee turnover can reach 30-50% of the annual salary of entry-level employees, 150% of the annual salary of middle level employees, and up to 400% of the annual salary for specialized, high level employees". 

So why are companies reluctant to publicly release information on their gender work and diversity policies? We know that investors increasingly require a broader spectrum of information in order to better understand companies’ ability to fully manage risks and opportunities in their operations. In its report, Calvert suggests that increased disclosure is needed. “To manage diversity, companies have to be able to measure it.” 

Mohammed Yunus and Michael Chu debate commercialization

The World Microfinance Forum in Geneva just put on a conference, and I might say, a quite successful one: over 300 investors and others paid their money to attend, and the presentations were well received. I was asked to moderate a debate between Prof. Yunus and Michael Chu. Michael, for those who don't know him, was a big-wig investment banker who then spent a few years on microfinance as President of ACCION. He's now teaching at Harvard Business School, and has stayed close to our field since he stepped down from running ACCION.

The debaters argued about whether commercialization (let's define it as the entry of investors whose primary motive is financial rather than social) is good for microfinance. Yunus thinks that it's immoral to make money off the poor, and that the only kinds of investors needed in microfinance are ones who are willing to accept very limited profits for the sake of keeping as much money as possible in the pockets of the borrowers. Michael thinks that we can't meet the worldwide demand for poor people's financial services unless we can draw in private, profit-oriented capital, and that eventual competition can be counted on to bring interest rates and profits down to consumer-friendly levels in most markets.

SoCap08

The Social Capital Markets 2008 conference is underway in San Francisco. (See this earlier post for a little background.) Here are some of the interesting bits so far from the SoCap08 blog.

Sean Stannard-Stockton of Tactical Philanthropy:

...I ran into an acquaintence who works for the The Institute for the Future. She was explaining to me that trends take 30-50 years to play out. So the Internet was first developed in the 1960’s, but it took 30 years for the internet to go mainstream and yet we’re still likely 10+ years from the Internet being fully “mature” in its growth cycle. I think the same is true in social investing. The first socially responsible investment fund was launched in the 1970’s, so we’re now 30 years into the trend. I have the sense (and the panel today was a nice affirmation) that we’re hitting the “knee in the curve” of growth in social investing. But that means that if you compared our industries to the growth path of the Internet, we’re probably sitting at around 1995. 

World Business and Development Awards

The International Chamber of Commerce and the United Nations Development Programme announced the ten winners of the World Business and Development Awards last Wednesday (Hat tip: Business Fights Poverty). The companies demonstrated "clear linkages between their core business practices and the contribution they make to achieving the MDGs." You can read more about the winners here. I think my favorite has to be ZMQ Software Systems:

On World AIDS Day, 1 December 2005, under the banner“ Freedom HIV/AIDS”, ZMQ released four mobile games on HIV/AIDS awareness to reach out to millions of people. It was a pioneering initiative to create awareness of HIV/AIDS within grass-root communities. The objective was to make use of the latest mobile technology to help
combat a serious disease. In the span of 15 months, the four games reached 42
million people in India, with a download of 10.3 million game sessions.

On the ZMQ website, you can shoot the HIV, save your village, or take a quiz with Mandela.