By Harry G. Broadman, Special to Gulf News
It’s only a slight overstatement to say that over the last several decades, carrying out Corporate Social Responsibility (CSR) initiatives has become a common practice by many large companies and financial institutions, particularly those who have investments abroad.
This is especially the case for sizeable foreign public corporations operating in emerging markets, where enterprise-sponsored initiatives aimed at facilitating economic development focused on environmental, social and governance (ESG) objectives are seen as avenues for business to “do well by doing good”.
But carrying out traditional CSR activities is becoming a dying breed. And the faster, the better. Why? Rarely do the deeds match the words.
Indeed, in an increasing number of cases, on balance the intended beneficiaries are not made better off; in fact, sometimes they actually are made worse off. And the same is beginning to happen to the CSR sponsors themselves. It’s high time for a reboot of CSR practices.
Here are a few areas where things have gone wrong.
Sometimes CSR projects are designed, even implemented, without fulsome consultation with representative groups of the local stakeholders. Discussing the priorities of a proposed CSR initiative only with a community’s leadership — usually government officials — and not elements of the broader society — including the poor, minority groups, women, religious leaders, educators and local businesses and workers — may result in a project that only serves to validate, if not embolden, the objectives of the most powerful vested interests.
Such benefits may come at the expense of the rest of the community that is already disadvantaged. At worst, these projects can introduce wholly new distortions within the local socioeconomic and political fabric.
Such problems often come about because of weaknesses in the fundamental day-to-day execution of CSR programmes. Indeed, there have been cases where a CSR sponsor, eager to garner local support for its potential ESG project, has given gifts or donations — dressed up as “philanthropy” — to the most significant influencers of the government, or directly to government officials themselves.
These actions almost always exacerbate status quo ante societal problems.
Moreover, such execution flaws can expose the sponsor to criminal charges under various anti-corruption laws. For example, in the US, the Foreign Corrupt Practices Act (FCPA), and in the UK the Bribery Act. There are, unfortunately, several well-known instances of CSR investments where literally nothing has been created in the local setting after hundreds of millions of sponsor-dollars (or equivalent) were “spent” on an endeavour.
One recent episode that stands out is a “donation” of $175 million given by two US oil companies to establish a research and training centre in Angola. More than four years later there is no such centre and no one seems to know where the money actually went.
While nascent or even non-existent in-country legal and policy regimes, whether with respect to their content or the effectiveness of their implementation, surely contribute to an environment overripe for such so-called “leakages”, in the end, it is a sponsor’s responsibility to ensure there exists a sound administrative and organisational framework that helps drive the programme towards the desired performance.
In fact, one would think that putting in place a robust system of checks and balances for a project, including third-party audits, would be the absolute top priority for a sponsor to it get right. After all, calling attention to positive outcomes is likely the overarching goal of the sponsored activities in the first place. Instead, as has happened in the case above, sponsors can face significant reputational risks, if not criminal charges of corruption. Quite the opposite of the CSR headline shareholders wanted to see.
To be sure, conventional CSR initiatives recently have been evolving for the better, in part, spurred on by these types of problems. Still, there’s a need for a fundamental CSR overhaul within the business community.
First, the traditional practice of using the “Corporate Foundation” as the principal, if not the only, vehicle for CSR programmes is doing more harm than good. Much of the design and implementation of CSR projects should be at the very core of an enterprise’s corporate strategy — not off to the side and competing among other internal parties for attention from the C-suite. This calls for organisational change.
Second, there needs to be formal recognition among the most senior members of corporate management teams and boards that the utilisation of an ESG framework to identify the key stakeholders and influencers in a market is a fundamentally underutilised strategic resource. The key is to focus on both proponents as well as potential detractors of a business’ commercial objectives — understand each party’s relative importance and then set a course to build alliances among shared interests, including an approach to keep the detractors at bay.
Third, the tools embodied in such a framework are precisely those that can — and should — be applied to mitigate corruption and other risks upstream — before they happen. A by-product of this approach is the creation of an incentive structure that induces stronger internal coordination among a variety of functions within the company, especially those related to legal issues (general counsels) and compliance (chief compliance officers and internal auditors).
In fact, if used effectively, these tools cannot only reduce exposure to risk but actually can also open up new market opportunities as well as expand the bottom — and sometimes the top-line. In short, the CSR function should be incorporated directly within the business strategy decision-making process from the get-go, not hived on as an after-thought.
The quicker companies mainstream their CSR objectives and execution protocols, the sooner both they and the stakeholders whose lives they are trying to improve will benefit.
Harry G. Broadman is CEO and Managing Partner of Proa Global Partners llc and a faculty member at Johns Hopkins University.
