Tuesday, 10 December 2013 00:00
Applying business acumen to CSR
The impact of corporate philanthropy is usually measured by a head count of the number of persons who are assisted by a particular social or financial development intervention of a charitable nature by a business enterprise. It is usually defined in contrast to various shared or blended value approaches to Corporate Social Responsibility (CSR) in which corporates seek to do well by doing good.
However, a different approach is being promoted by the Committee for Encouraging Corporate Philanthropy (CECP), currently chaired by Doug Conant, one time longstanding (for over a decade) CEO of the Campbell Soup Company. CECP had advanced the view that corporate philanthropy can also be a discovery phase in investment in a social issue and can also help corporates reduce business risk, open up new markets, engage employees, build their brands to a new level of community awareness, help to reduce costs, advance technology and deliver competitive returns.
CECP encourages businesses to view philanthropic investments as incubators for promising ideas and a mechanism for understanding both community and corporate needs. They are of the view that similar in many ways to research and development investments, philanthropy allows corporates to make thoughtful investments in sectors where the return on investments profile is more speculative and therefore may be more risky.
Doug Conant, Chairman of CECP, cites the example of his own time at the Campbell Soup Company as a justification of this type of philanthropy. During that timeframe of around 10 years, Campbell Soup created an inspirational mission of ‘building the world’s most extraordinary food company by nourishing people’s lives everywhere, every day’.
In the process of implementing this lofty mission Campbell Soup launched several philanthropic initiatives. In 2010 the company committed itself to cutting its environmental footprint by half by 2020. Campbell Soup announced a special partnership with the American heart Association to address consumer concerns over heart health, particularly in relation to diet. In partnership with the Campbell Soup Foundation, the CSR arm, the company built and developed a long term program to directly address childhood obesity and hunger in communities where the company had a major presence, operating production facilities.
It was observed that the more the company leveraged its business resources to deliver social value to the neighbouring communities, the more engaged the employees of Campbell Soup became in their commitment to the company and its values and the better the company performed in the market place.
Vodafone in Africa
Another example of a similar nature is that of Vodafone in Africa. In 2003 Vodafone saw an opportunity to bring mobile banking services to rural Africa through its Kenyan affiliate Safaricom. The idea in time became a profitable venture for Vodafone and revolutionised the financial services sector and became a ground breaking business for Safaricom, successfully replicated in many other countries.
However, at the initial stages there wasn’t sufficient corporate confidence to fund the initiative fully. In fact Safaricom’s new mobile banking service was given seed money by a philanthropic matching grant from Britain’s Department for International Development. These philanthropic dollars helped incubate the initiative, proving the empirical evidence that Vodafone needed before it decided to take the bigger financial risk of the investment.
Safaricom’s M-PESA mobile banking service today is the most popular method for financial transfer in East Africa. By January 2012 Safaricom had 12 million subscribers. It employs over 1,500 people. M-PESA allows Kenyans to transfer funds via a SMS message. The users need not have bank accounts.
An M-PEEA user simply buys ‘digital’ funds, ( the local currency – in Kenya’s case shillings) at an M-PESA agents outlet and sends that electronic cash by SMS to any other mobile phone user in Kenya, who then can withdraw the cash at any M-PEA agent by showing the SSMS and after the agent verifies the message, Another advantage is that an M-PESA enabled electronic phone cal also function as an electronic wallet and at any given time an individual can hold up to 100,000 Kenyan Shillings in his electronic wallet.
IBM’s Smarter Cities Challenge
Philanthropy can also assist corporates on the employee development aspect. An example would be IBM’s Smarter Cities Challenge. This is a competitive grant program that sends teams oof IBM employees into cities all over the world to address community issues. The teams offer integrated consulting services, tapping IBM’s core business expertise and knowledge to collect and analyse critical data, provide solutions and improve complex systems such as health care and public safety.
Many IBM employees have given feedback that the Smarter Cities Challenge was one of the most rewarding experiences of their careers. In other words, it is a priceless program for professional development and employee engagement that IBM could not have sourced from elsewhere, even by attempting to purchase it through the market.
The Committee Encouraging Corporate Philanthropy (CECP) draws together and empowers senior executives of the world’s leading companies to achieve progress on societal challenges while driving business performance. In the USA, members of CECP, it has been estimated, generate about half the annual GDP. A recent survey of CECP members and other Fortune 500 companies, it was found the 59% increased their corporate philanthropy between 2007 and 2012.
The survey also disclosed that in-kind giving by corporates also grew rapidly in that same timeframe. Taken as a percentage of total corporate giving, non cash contributions grew in aggregate from 57% in 2007 to 69% in 2012. The survey also disclosed that education has become the leading recipient of programmatic giving by corporates. The average company surveyed had allocated 29% of its giving to educational institutions. In 2012 CECP member companies had given in excess of US$ 14 billion to charitable causes. CECP makes the point that this is no accident; it is a purposeful policy initiative.
Smart and savvy corporate managers today understand and appreciate that corporate philanthropy is a part of a broader economic recovery strategy, boot for the corporates themselves and for the communities in which they invest. A senior banker once pointed out that his bank knew that one of the reasons for the bank surviving the economic downturn and recession was that, when times were heard for the community in which the bank was located, the bank helped the community at their lowest point through philanthropy, the communities in turn appreciated this and, helped the bank back, through providing business.
Bill and Melinda Gates Foundation
Corporate philanthropy must be considered in the context of the overall economy. Philanthropy is the practice of helping the poor, especially by giving money. Capitalism is an economic system in which a country’s businesses and industry are run for profit by businesslike approach the wealthy have taken to the charitable work they earlier only funded, they are getting directly involved in the projects.
The flag carrier for philanthro capitalism is the founder of Microsoft – Bill Gates. Gates has left Microsoft to take charge of the Bill and Melinda Gates Foundation. In 2007, Gates the speaker at the Harvard University’s Commencement gave a powerful answer to the question as to why he is a philanthro-capitalist: “If you believe that every life has equal value, it’s revolting to learn that some lives are seen as worth saving and others are not. Melinda and I said to ourselves: ‘This can’t be true. But if it is true, it deserves to be the priority of our giving.’ So we began our work in the same way anyone here would begin. We asked, ‘how could the world let these children die?’ The answer is simple and harsh. The market did not reward saving the lives of these children, and governments did not subsidise it. The children died because their mothers and their parents had no power in the market and no voice in the system. But you and I have both. We can make market systems work better for the poor, if we can develop a more philanthropic capitalism – if we can stretch the reach of market forces so that more people can make a profit, or at least make a living, serving people who are suffering. We can also press governments around the world to spend taxpayer money in ways that better reflect the values of the people who pay the taxes. If we can find approaches that meet the needs of the poor in ways that generate profits for business and votes for politicians, we will have found a sustainable way to reduce inequity in the world. This task is open ended. It can never be finished. But a conscious effort to answer this challenge will change the world.”
Recently, investor Warren Buffet, the Sage of Omaha, agreed to hand over the bulk of his fortune to the foundation run by Gates. Buffet recently summoned a group of likeminded billionaires to a meeting and got them to commit a large part of their fortunes to philanthro capitalist initiatives.
Philanthro capitalist initiatives
Paul Tudor Jones, a hedge fund manager founded the Robin Hood Foundation in the late 1980s. It has raised more than US$ 1 billion for fight poverty. The Foundation’s Board members cover the administrative overheads of Robin Hood; all donations are directly spent on anti-poverty efforts in four key areas – early childhood and growth, education, jobs and economic security. Robin Hood also rigorously evaluates the programs and projects it funds and provides an honest appraisal to its donors.
Billionaire and legendary investor George Soros has long planned to give away the bulk of his fortune. Aged 80 now, he no longer believes he can donate all his estimated US$ 14 billion in his lifetime. On 17 September 2010, he gave Human Rights Watch US$ 100 million, the gift will be paid out over the next decade on the condition that every dollar of Soros’ must be matched by another dollar from another source.
Oprah Winfrey, through her Angel Network in the United Sates, uses her enormous popularity as the USA’s most watched talk show host, to publicise and hold accountable worthy projects and invites her viewers, even if they can donate only small amounts of money, to support them. Oprah covers the costs of management, fund raising and other operating costs, in order that all donated funds ‘go to help underserved people rise to their own potential.’
Not confined to the West
Philanthro capitalism is not confined to the West. Recently N.R. Narayana Murthy, a co-founder and Chief Mentor of Infosys, India’s leading BPO software company, and his wife Sudha, declared an intention to give their wealth to charities working in basic healthcare, basic education and basic nutrition.
A Sri Lankan example of philanthro capitalism would be the construction and donation to Government in 1946 of the Homagama Hospital by the late businessman B.A. Semaneris Appuhamy. In 2007 his youngest son B.A. Mahipala, also a successful entrepreneur, constructed and donated a new building to this same hospital. The Bamunu Arachchi Foundation, which is the family’s charitable vehicle, is actively involved in the day-to-day support of this hospital.
The hands-on approach of philanthro capitalists reflects an increasing frustration in civil society and the business community with development and disaster mitigation politico-bureaucracies. The overheads are too high, governance is questionable, expatriate staff lifestyles stick in the eye of the poor and displaced. So mere giving money is not enough, let’s get involved, participate and ensure that we get a sufficient bang for our bucks.
Philanthro capitalism has become institutionalised
Philanthro capitalism has become institutionalised; in Britain the Institute for Philanthropy helps charities raise funds for good causes by providing donors with greater incentives for giving. The institute wants to be a catalyst, to use their networks and knowledge to develop organisations and ideas for the benefit of British philanthropy. In India recent legislation has made compulsory, CSR initiatives by corporates, opening up a whole new scenario for corporate interventions in this sector.
Institutions like the Committee for Encouraging Corporate Philanthropy in the US and the Institute for Philanthropy in Britain conceded the point that philanthropy is not the only strategy for companies to play meaningful corporate citizenship roles. Business leaders should use every tool in their Corporate Social Responsibility (CSR) portfolio to help create economic value that can help address relevant community and social issues.
The challenge, put forward by these institutions, is to take a second look at their philanthropic initiatives and consider whether the initiatives can be more market based – to create entrepreneurial and business revolutions like Safaricom’s M-PEA in Kenya, which is being replicated worldwide. This is creating a revolution in financial services to the poor.
Traditional CSR must be reconfigured to test new business strategies, which will create economic opportunities and jobs. The key is bringing good business insight and discipline into the traditional CSR process. Learn about communities, meet their needs, certainly. But make the CSR interventions strategic in an economic development and job creation sense. That is the challenge that the business community faces in their philanthropic activities today. Is it enough colour-washing a hospital or a school building? Is it possible to look at the operational aspects of these institutions, and bring business acumen to make savings, reduce cost, or make them more efficient, providing a quality service to their customers?
(The writer is a lawyer, who has over 30 years of experience as a CEO in both State and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)