NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Guest blogger Rhys Thom is an intern with WRI’s EarthTrends project. Originally from Albuquerque, New Mexico, Rhys comes to WRI with an extensive background in development, having worked in Honduras, Namibia, and Nigeria. He also owns his own multimedia marketing firm.

As the ideas of corporate social responsibility and the triple bottom line become more pervasive in the private sector, new questions and obstacles are bound to arise. At Columbia Business School’s Social Enterprise Conference 2006 last Friday, three themes resonated throughout the conference: the need for metrics to quantify social and environmental profits, the need for NGOs and public sector entities to be professional and accountable for public/private partnerships to work, and bringing Corporate Social Responsibility out of the proverbial ghetto.

The day started off with a panel on Creative Approaches to Global Health Problems. I arrived half way through (who knew that the Upper West Side is an hour-plus subway ride from Park Slope?) but was still in time to catch a few salient remarks from leaders in the public health arena. New approaches to philanthropy, market mechanisms for drug distribution to developing markets, and obstacles to creating and providing vaccines for AIDS and malaria were among the new ideas being kicked around. Patricia Duquette, the Director of Women’s Health and Global HIV/AIDS Initiative at Bristol-Meyers Squibb Foundation, discussed new trends in philanthropy including donating expertise and intellectual property to non-profit health organizations, citing Merck and BMS’s in-kind donation to the International Partnership for Microbicides of a royalty-free license to develop, manufacture, and distribute their microbicide compounds in developing countries.

As far as traditional funding, Kate Taylor, Senior Director for Policy and Advocacy, at the International AIDS Vaccine Initiative, mentioned that funders are pleased to see that the indicators and progress monitoring methods that non-profit organizations use are starting to mirror the rigorous and comprehensive evaluation practices employed in the private sector. Peter Salama, the Chief of Immunization and Child Survival at UNICEF brought up the Advanced Market Commitment as an innovative and potentially effective way of creating incentives for drug companies to create drugs for markets traditionally seen as unprofitable.

All three panelists conceded that there is no master plan coordinating the efforts of non-profits and pharmaceutical companies in the development of an AIDS vaccine. Further, they agreed that if and when such a vaccine is produced, the infrastructure for immediate deployment of the vaccine is extremely limited in the regions where it is needed most. There was also panel-wide agreement that CEOs of pharmaceutical companies should commit to the social bottom line and that social enterprise must integrated into line management for it to work. Otherwise it runs the risk of becoming a PR exercise only.

Next, I attended my first breakout session which was titled Revisiting Corporate Social Responsibility: Are Companies Really Doing Well by Doing Good? Based on the name, I imagined this to be a critical forum on the theory and practice of Corporate Social Responsibility. Instead I found it to have a slight whiff of green washing as two of the panelists, Pam Flaherty, the Senior Vice President of Global Community Relations for Citigroup and Wade Hughes, the Director of Public Strategy for Primary Products Growth with Alcoa spent an excessive amount of time extolling the virtues of their respective companies’ commitment to CSR. Wade Hughes unenthusiastically rushed us through an Alcoa PowerPoint during which he flipped past some slides outlining Alcoa’s code of CSR conduct dismissively saying something to the effect of ?this is our policy on sustainability?or whatever you want to call it?.

The third panelist was Chris Deri, Executive VP and Director of Global CSR Practice at Edelman, a global PR firm. Having a representative from the public relations field on the panel seemed to reinforce negative critiques that much of CSR is just PR, especially when coupled with the other two panelists? unabashed advertisements for their respective companies. It seems that the first instinct for companies is to group CSR with their PR efforts. This is a mistake and this panel seemed to know this even though they seemed to be making the mistake themselves. When asked by an audience member what they were doing to move away from reactionary approaches to CSR and if they were developing more proactive measures to achieve CSR, not one panelist had an answer.

My summary of the little substantive discussion to come from this session is that CSR is becoming mainstream, which is good. However, CSR efforts and personnel need to be integrated across the company rather than being isolated in order for CSR to be effective and to become more about creating positive change and less about public relations. Financial analysts and investors do not seem to value sustainability and this is largely due to the lack of metrics and ability to quantify the benefits of a triple bottom line. Also, public private partnerships (an integral part of CSR) are made difficult by a perceived lack of transparency, accountability and efficacy in many non-profits. The solutions to these obstacles lie in companies? being able to make the business case to analysts and investors on the tangible financial benefits of real CSR that goes beyond image enhancement and for non-profits to become more transparent and adopt more strict methods for evaluating progress and success.

After lunch, keynote speaker Jim Sinegal, the CEO and founder of Costco Wholesale, was awarded the 2006 Botwinick Prize in Business Ethics. This session was closed to the press so I will practice responsible blogging and not go into depth. I will mention however, that Mr. Sinegal gave an informative and entertaining speech on Costco and his sincerity and commitment to running a socially responsible business was very apparent and seemed to be rooted more in pragmatism and practice than rhetoric and theory. It is also significant that as part of its business model Costco spends no money on PR or advertising.

Following the keynote speech I attended a breakout session on The Role of Private Equity in Emerging Markets. The panelists were an impressive selection of managers of private equity funds that invested in emerging markets. The theme of how difficult it was to quantify social success came up again as several of the funds, the International Finance Corporation, Acumen Fund and Small Enterprise Assistance Funds measure success in both returns and social and economic development. The managers of these funds agreed that creating and measuring success on multiple axes can be complicated.

Thomas Barry, the President and CEO of Zephyr Management, measures success in returns only and is confident that returns are representative of economic development. Yasmina Zaidman, portfolio manager for the Acumen Fund, uses a three part test, (measuring whether a company has increased its volume of output 10 times, measuring the impact on a social problem, and whether or not the company can leverage private capital on its own) to determine the success of an investment. An interesting barrier to investing that was brought up was that a lot of these emerging markets are in states or regions that are controlled by an oligarchy. Investing in small and medium-sized enterprises and fostering economic development in these areas is often a subversive act as it wrestles economic hegemony away from a small ruling elite and decentralizes economic power.

The last and certainly most provocative breakout session was on Bottom of the Pyramid: Merging Competitive Strategy with Social Mission. Diana Yousef from the UNDPs Growing Sustainable Business Initiative presented on her organization’s work, which she considered to be pro-poor investing rather than Bottom of the Pyramid facilitating. The Growing Sustainable Business Initiative works with large national and multinational corporations working in underserved markets and specializes in intervening at key points in the value chain to identify and mitigate barriers to operation. Yousef is not sure if BOP is the right model for creating development through enterprise.

Erik Simanis, co-director of the Bottom of the Pyramid Protocol Project, laid out the Bottom of the Pyramid Protocol 2.0 for us. Simanis is working with Stuart Hart at the Bottom of the Pyramid Learning Lab at Cornell University to develop the Protocol, which is basically a tested blueprint that MNCs can follow to take the plunge into the BOP market.

Simanis has worked with SC Johnson and DuPont/Solae on the development of the BOP Protocol 2.0 through pilot projects in Nairobi, Kenya and Andhra Pradesh, India. His description of the process and the Protocol is much too dense to go into in this post but the BOP Protocol 1.0 is available online here.

While I am open to the Bottom of the Pyramid concept, the possibility of exporting developed markets? unsustainable production and consumption model to the remaining two-thirds of humanity still frightens me. Given the disproportionate amount of resources consumed by the top of the pyramid it seems that products introduced to the bottom of the pyramid must be exceedingly environmentally friendly and produced with the highest energy and resource efficiency possible. Speaking to Simanis about this after his presentation he suggested that for the BOP model to even be economically feasible, products would have to be produced in a way that requires significantly fewer resources than do traditional products. Issues of waste and environmental impact are still an issue and are largely up to the Collective Entrepreneurship, a group identified in the protocol that is made of the local communities, local business, the MNC, and relevant governmental and non-governmental organizations. He believes that the impetus has to come from the process. Simanis is clearly committed to an open PRA style methodology of implementation, where these issues are raised by the Collective Entrepreneurship rather than mandated in the protocol. If there is any one thing I’d like to see required in the BOP Protocol 3.0 it is the strong consideration, evaluation and integration of the broad environmental and health impacts of the products that will be brought to market under the blueprint.

All in all, this was a highly informative and engaging conference. I?m glad that the private sector is snapping to the idea that CSR is more than PR. I believe that it’s now up to both the private and the public sector to strengthen the business case for CSR and to devise standards and metrics for measuring social and environmental good and its impact on the traditional bottom line.