Corporate Social Responsibility Is Making Gains in Latin AmericaPublished: August 21, 2012 in Knowledge@Australian School of Business
In April, singer Shakira took the stage in front of the Western Hemisphere's most influential business leaders and delivered a message: Open your wallets. "It would be fantastic to see the business leaders of Latin America embrace philanthropic capitalism in the way that executives in other countries have, for example Bill Gates and Warren Buffett, who ask multimillionaires to promise that they will pledge half of their fortunes to help the poor," she said, addressing the first ever CEO Summit of the Americas in Cartagena, Colombia, her home country. The audience included chief executives from Fortune 500 companies, foreign presidents and the heads of international organizations. Shakira, whose own charity has worked with poor Colombian children for the past 15 years, challenged them to "compete to see who writes the biggest check."
Whether a check-writing campaign will ensue remains to be seen. But Shakira's plea highlighted a question that's being pondered in business schools and boardrooms alike: Should corporations and their executives do more to help the poor? It's an issue of particular importance in the developing world, where the chasm between rich and poor has turned the spotlight toward the role multinationals play in communities.
Latin America's economic growth has meant boom times for corporations, which have benefited from widespread privatization of services and the consumption of products by a growing middle class. The growth has made millionaires and billionaires, including the world's richest man, Mexican telecommunications mogul Carlos Slim, whose net worth hovers around $69 billion. In contrast, 161 million people, about 30% of the region's population, still live in poverty, according to a survey by the Argentine Universidad Nacional de La Plata and the World Bank. What's more, access to health care and quality education remains out of reach for the majority.
Corporations have moved to address social development as part of business practices as much as philanthropy. "There's a growing awareness about the need to focus on developing the broader institutional and social structures in which companies operate, which will then help the overall market and economy and community develop," says Nien-hê Hsieh, a professor of legal studies and business ethics at Wharton.
In a climate in which public trust in corporations is near an all-time low, according to polls, such well-meaning endeavours can go far in rebuilding trust and restoring the public faith in a company. Latin American consumers say corporations are improving in their approach to social responsibility, according to the "State of Corporate Social Responsibility 2011" report by Chile-based Forum Empresa, which surveyed 3,200 people, including 1,279 executives. Seventy-two (72)% of respondents said that the CSR practices of national companies had improved from 2009 to 2011 and 64% said the practices of multinational corporations had improved during those two years.
An Ongoing Debate
Corporations have for decades instituted social programs into their corporate social responsibility strategies. While companies are paying more attention to social development, they are split over how heavily to incorporate poverty alleviation into projects. Strategies that focus on helping the poor, such as the so-called bottom of the pyramid approach, have won supporters and drawn critics. "The biggest discussion has been around whether bottom of the pyramid strategy is really the best way to alleviate poverty. That's a debate that's still underway," Hsieh notes.
Coimbatore Krishnarao Prahalad, whose 2004 book The Fortune at the Bottom of the Pyramid suggested that multinational companies should focus on the world's poor as a market for products, brought the approach into the public consciousness. Prahalad died in 2010, but in a 2009 interview with Knowledge@Wharton, he said the idea had transformed efforts at poverty alleviation on many levels. "For example, several of the multi-lateral institutions - The World Bank, UNDF [United Nations Development Fund], IFC [International Finance Corporation] and USAID - have fundamentally accepted the idea that involvement of the private sector is critical for development....," he noted. "I asked 10 CEOs of companies as diverse as Microsoft, ING, DSM, GSK and Thomson Reuters to essentially reflect on whether the book has had some impact on the way they think about the opportunities. Uniformly, everybody - whether it is Microsoft or GSK - essentially says not only that it has had some impact, but that it has changed the way they approach innovation and ... new markets."
Researchers have questioned the ethics of such an approach to poverty alleviation. The "strategy has some inherent problems, however, and [Prahalad] admits that 'profit creation and poverty alleviation do not mix easily or well,'" wrote Kirk Davidson, professor of international studies at Mount St. Mary's University, in the Journal of International Business Ethics in 2009. "Whether his vision is feasible or whether it is a 'mirage' ... is a debate that should engage scholars for some time to come."
While that debate continues, many companies, large and small, have begun instituting programs that focus on benefiting the poor while also the bottom line. In one case, a Nicaraguan cigar manufacturer opened a day-care centre across the street from the factory. The workers are allowed to leave the job whenever necessary to meet with teachers or attend to their children. Aside from a convenience for workers, the centre helped the manufacturer improve production by cutting down absenteeism.
On a broader scale, foods giant Nestlé, aiming to improve the lives of small producers in the region that provide its raw materials, modified its value chain to work more directly with farmers. The corporation, with annual sales of more than US$4 billion in Latin America, says the change will benefit its 150,000 suppliers in the region. The change also gives preference to those suppliers producing products in an environmentally sustainable way. "To us, corporate social responsibility is not something that is imposed from the outside, but is an inherent part of the Nestlé business strategy," Peter Brabeck-Letmathe, the company's chairman and chief executive, said in a statement.
In Mexico, PepsiCo decided it wanted to use healthier oils to produce fried snacks. It began working directly with sunflower farmers in the southern Mexico state of Chiapas. PepsiCo received a dependable source of oil and the farmers received the training and support to increase production and, ultimately, sell more sunflower seeds.
A common thread among those examples is that they link corporate social responsibility to business goals. "Companies are looking to make a business case for their social programs. The programs have to be tied to their strategy," says Steve Puig, vice president for the private sector at the Inter-American Development Bank. He pointed to the issue of youth unemployment in Latin America. Across the region, nearly 16% of youth - ages 15 to 24 - were unemployed in 2009, according to a study by the Economic Commission of Latin America and the Caribbean. In some countries, the unemployment rate for that group was closer to 50%, feeding a cycle of poverty and youth violence that has contributed to the growth of gangs and criminal activity.
While it could be seen as a purely a social issue, youth unemployment also affects business. For a McDonald's franchise, or a Wal-Mart store, the availability of qualified workers is imperative. In 2011, a survey by human resources firm Manpower found that 40,000 businesses in Latin America and the Caribbean struggled to find qualified employees.
In April, at the same event where Shakira spoke, the Inter-American Development Bank announced a groundbreaking initiative aimed at Latin America's youth. During the next decade, the corporations will train one million youth in Latin America and the Caribbean. The so-called New Employment Opportunities program puts the private sector at the forefront of a key social problem that feeds poverty in Latin America, Puig notes. "It's an approach that is pan-regional and involves some of the biggest employers in Latin America," he says. Among those that have signed on are Wal-Mart, Caterpillar, Microsoft, cement company CEMEX and the leading McDonald's franchise. Together, those companies already employ around 500,000 people in the region. So far, companies have committed some $37 million in cash or contributions, including promises for job placement. By coordinating efforts across borders and across corporations, the bank hopes to create a sustainable platform to address youth unemployment, Puig adds.
Beyond the Buzzwords
Sustainability has long been a buzzword in corporate social responsibility circles, fuelled in part by a rejection of previous practices. Corporations have been roundly criticized for relying on one-off projects - like funding the construction of a health clinic with no regard for how it will be staffed or kept full of medicine - to curry favour with consumers. Local companies are moving away from that approach, however, and opting for long-term projects.
Justin van Fleet, a Brookings Institution researcher studying corporate social responsibility trends in Latin America, said multi-Latinas (homegrown Latin American corporations with operations throughout the region), more than multinationals, are investing in multi-year projects that have a direct effect on their consumers or workforce. "[Multinationals] are engaging in a lot of the same things, relatively small projects with short-term, or one-time, grants," he notes. "Multi-Latinas, on the other hand, have more three- to four-year projects."
To carry out those projects, corporations are working through local channels, like non-governmental organizations, and, where applicable, government agencies. "There's a thought that to address sustainability in a real way, you have to ... get local stakeholders involved," Puig says. "One of the ways around the challenges of [working on projects in foreign countries] is through partnerships with NGOs, governments and other organizations that know how to engage that community." For example, the New Employment Opportunities program calls on Latin American governments to commit to job training programs. It also partners with the International Youth Foundation, an international NGO that specializes in youth programming. The success of the program "relies on public and private sectors working together ... including interacting with governments," Puig notes.
According to van Fleet, corporations are also looking beyond traditional areas in an effort to establish more sustainable projects. Whereas health projects, like building a clinic, were once the mainstay, corporations are investing in other sectors, like education. Investment in education, van Fleet notes, has reached between US$500 million to $1 billion. While that's just a fraction of the roughly $8 billion invested in social programs, it's increasing substantially, although the figures have not been tracked over time.
Yet, sustainability has yet to be fully embraced by the business community. Only 55% of corporations surveyed in the "State of Corporate Social Responsibility 2011" report had published a sustainability policy. Hsieh sees a similar split within the corporate community over the role of corporate social responsibility in general.
"There remains a debate and I think it will be this way going forward, about whether corporations should be focused on profit for shareholders or whether they have a greater responsibility," Hsieh says. "That's a debate that we have not yet answered."