Corporate Social Responsibility and Sustainable Competitiveness

Djordjija Petkoski

Lead Specialist, World Bank

April 2003

dpetkoski@worldbank.org

World Bank Institute

Overview

I. The World Bank and WBI

II. Setting the stage and the Big Picture

III. Corporate Social Responsibility and Ethics

IV. World Bank Institute

V. Raising CSR IQs

I. The World Bank and WBI

World Bank Group key priorities:•PPoverty Alleviation•GGood Governance•GGood Investment Climate

“The World Bank as a whole has two faces – we are a lending Bank and a

Knowledge Bank, positioned at a major intersection in the knowledge economy, connecting global learning opportunities

with investment assistance for local development. Our role is that of

facilitator, broker, connector, catalyst – WBI is our catalytic agent.”

– James D. Wolfensohn, President,

The World Bank

WBI creates learning opportunities for countries, Bank staff and clients, and

people committed to poverty reduction and sustainable development.

II. Setting the Stage and the Big Picture

Dynamic Change: Rising Risk

• Technology, including the Internet and mass media.

• Globalization – anti-globalization movement.• Stronger civil society.• Lack of trust in corporate America.• Ira Millstein: “A new world of unprecedented

scrutiny.”• Increased importance of CSR and supporting

institutions.• Terrorism.

Beyond the Letter of the Law

• Corporations are vigorously held to account in the court of public opinion.

• Regulatory compliance is no longer enough.• Facing countless gray areas –

1. Net of complex factors2. Standards are continuously shifting.

• At stake is a company’s reputation.

A Risk Grid

• Short-term risk: financial market fluctuations; brand-new technology; loss of key customers or suppliers.

• Long-term risk: demographic shifts; impact of HIV/AIDS and poverty.

• Intrinsic risks: inside the company.• Extrinsic risks: outside the company.___*Blue Ribbon Commission, Fall, 2002

Risk Grid

Loss of competitive

position

Demographic shift and poverty

Employee crimes Terrorism/

terrorist actsShort Term

Long Term

___*Blue Ribbon Commission, Fall, 2002

Intrinsic Extrinsic

Poverty and Developing Countries

Today:

• 3 billion people (survive on) under $2/day

• 1.2 billion people (survive on) under $1/day

Population Growth

2000 2025 2050

Developing Countries

5 billion 7 billion 8 billion

Developed Countries

1 billion 1 billion 1 billion

Global Gross Domestic Product (GDP)

Year 2000:

• 30 trillion – 5 billion people – 20% global GDP

Year 2050:

• 140 trillion – 8 billion people – 40% global GDP (assuming 3.5% growth)

III. Corporate Social Responsibility and Ethics

Competitiveness

Corporate Governance

Corporate Social

Responsibilities

Business Conduct/Ethics

Leadership and

Values

Importance of Ethics

“The best chance you have of making a big success…is to decide from square one that you are going to do it ethically”

- Alan Greenspan

Chairman, Federal Reserve Board

Importance of Ethics

“There is no such thing as business ethics….There’s just ethics; and we all have to practice them every day in everything we do.”

– Peter Drucker

CSR – A New Paradigm

To think comprehensively and systematically about

• The role of business in development

• The manner in which the business is conducted

• Corporate Governance

• Poverty alleviation

• Corporate contribution to peace and war against terror

• Business, government and civil society partnership- common ground and collective action

Barriers to CSR

A) Corporate Level- Lack of leadership and vision- Too much focus on short-term goals- Inability to recognize opportunities- Lack of entrepreneurial spirit and innovation

Barriers to CSR

B) Country/Society Level – Lack of creative pressure from the government and

civil society.

– Lack of support from the consumers

– Lack of peer support through business associations - reluctance of other companies to follow

– Lack of economic/market incentives

Examples: Why we need Corporate Governance

• Russian Oil Firms

Market Value Estimated Actual Value

Discounted Ratio

Firm A:

$90 mn.

$50 bn. 556 times less

Firm B:

$20 bn.

$600 bn. 30 times less

IV. World Bank Institute

Tools

• Global E-Surveys

• Global E-Conferences

• Web-Based Courses (Global/Country Focus)

• Face-to-Face– High-Profile: Awareness and Consensus– Action Plan

Which of the following factors most affects public impression of individual companies?

E-Survey on Corporate Social Responsibility (US 546 – World 2602)

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

FinancialFactors

Company size BusinessStrategy

Managementquality

Corp.Reputation

Laborpractices

Businessethics

Responsibilityto society

Environ.impact

US World

E-Survey on Corporate Social Responsibility (US 546 – World 2602)

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

Pollution Depletion ofresources

War Humanrights abuse

Gaprich/poor

Economicinstability

Violation ofworkers

rights

US World

Which of the following problems affects you, your family and your community the most?

What are the main constraints that make it difficult for companies in your country to address Corporate Governance, Corporate Social Responsibility and Business Ethics issues in a more systematic and

effective way?

E-Survey on Corporate Social Responsibility (US 546 – World 2602)

00.020.040.060.080.1

0.120.140.160.180.2

US World

E-Survey on Corporate Social Responsibility (US 546 – World 2602)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Yes No I considered doing so

US World

Did you reward or punish companies in the past year based on your perceived social performance?

E-Survey on Corporate Social Responsibility (US 546 – World 2602)

0

0.1

0.2

0.3

0.4

0.5

0.6

International Law Voluntaryimplementation

Public exposure Economicincentives /

penalties

US World

What is your preferred approach to strengthening international safeguards and business conduct codes?

E-Conferences• “Global E-Conference on CSR, Education and

Technology” (Nov. 18 – Dec. 7, 2002)• WBI and the University of Michigan Business School “E-

Conference on Business, Democracy and Peace” (Oct. 7 – Nov. 1, 2002)

• WBI and Ethics Officer Association (EOA) “E-Conference on Business Ethics and Corporate Accountability: The Search for Standards” (Sept. 9 – 27, 2002)

• WBI and Inter-American Development Bank “Americas E-Conference on CSR” (June 10 – July 5, 2002)

• “Future Leaders’ E-Conference on CSR” (March 18 – April 26, 2002)

Web-Based Courses on Corporate Social Responsibility

• 2550 participants/90 countries• Key partners:

1. UN institutions: UNDP, UN Global Compact, UNIDO, UN Staff College

2. Academia: Wharton School of Business, University of Michigan, Higher School of Economics (Moscow)

3. Corporate world4. Civil society

V. Raising CSR IQs

Raising CSR IQs

ZMET/HBS

“The fundamental obstacle to CSR is that we are caged in our current ideas.

This is a picture of a man inside a prison with broken-down technology –

computers, clothes, lamps, and all kinds of things. If we stick with our current

technology, consumption, business model, and decision-making models, this is where we will end up for sure.”

– ZMET interviewee

“Guy going from one side of the canyon to the other… a lot of clouds like fog. The point is

going from one way of doing business to another is very tough. There’s a lot

uncertainty. It takes a lot of skill, but we have to lift ourselves beyond that, above the fog, and that’s not going to be a simple exercise. CSR is about seeing the forest, the fog, and

seeing how we can get on the other side, and how we can be well-equipped for doing that.

So probably we need to develop additional skills, knowledge, and understanding.”

– ZMET interviewee

“We have some kind of salad with a human face… with a smile made with a hot pepper.

So the story is that in all of our implementation challenges, we have to see

that human face, identify with it… on the trees we are cutting down, the fields we are

destroying… ourselves we are hurting. With some kind of creative effort, we can see that. It’s not going to be all sweet. This hot pepper will make our lives unpleasant from time to time. But I think the overall effect will be

positive.”

– ZMET interviewee

“The message is that whatever we do today will have an impact on future generations. It’s

not just my kids or your kids or somebody else’s. It’s future generations. We should not

hope that the walls we build to protect ourselves will be tall enough to protect our

children. Only with very conscious effort we can make the world for them a better place to

live…even if we address our most selfish needs we have to address the needs of the next

generation. That’s what CSR is about.”

– ZMET interviewee

Need for partnerships

• Businesses are discovering social values

• NPOs are discovering business principles A new thinking about partnership: not an exchange but building relationships between business and NPOs. To find ways to make philanthropy serve the community and company’s business objectives.

• The collaboration continuum – Philanthropic (Charitable donor and recipient)– Transactional– Integrative For more details, see : J.E. Austin “The Collaborative Challenge” Jossey Bass Publishers, 2000

Collaboration Continuum

Relation type Philanthropic Transactional Integrative

Level of Engagement

Low High

Importance to Mission

Peripheral Strategic

Magnitude of resources

Small Big

Scope of activities Narrow Broad

Interaction level Infrequent Intensive

Management complexity

Simple Complex

Strategic value Modest Major

From: J.E. Austin, “The Collaborative Challenge”

Creating partnerships

• What are you trying to accomplish through the collaboration?

• Where does your mission overlap with the potential partner’s mission?

• Do you and your potential partner share an interest in a common group of people?

• Do your needs match up with your partner’s capabilities, and vice versa?

• Would the collaboration contribute significantly to your overall strategy?

• Are your values compatible with your prospective partner’s

From: J.E. Austin, “The Collaborative Challenge”

UN Global Compact Course Module

Objective Increase understanding of Global Compact

and main principles- Mission- 9 Principles

Design What action is required from the businesses

to meet the main principles of the Global Compact?- the business benefits to join- what companies need to do to qualify- what do the 9 principles mean to business?Source: UN Global Compact (2003)

Implementation

Global Compact Performance Model to implement the principles

The Global Compact mechanisms for engagement

Learning Forum

Policy Dialogues

Local Networks

Partnership projects

UN Global Compact Course Module

Source: UN Global Compact (2003)

UN Global Compact Partnership

UN Global Compact and WBI are jointly organizing:

1. A Global Compact Module for the web-based course on ‘Corporate Social Responsibility and Sustainable Competitiveness’

2. An E-Conference on ‘The Role Of Business In Fighting HIV/AIDS’, April 21- May 9, 2003

The recommendations will be shared with decision-makers at the ILO and UNAIDS conference in Geneva, May 12-13, 2003

Private Sector Perspective

“Corporate Social Responsibility is not a cosmetic; it must be rooted in our values. It must make a difference to the way we do our business.”

Group Managing Director

“You cannot talk about CSR unless you love your people and your country”

A student from Moscow, in opening remarks for a meeting on Russian Future Leaders and CSR, with Mrs. Wolfensohn.