CED Global Pov/Enterprise L2

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REDUCING
GLOBAL POVERTY: Engaging the
Global Enterprise July 2003 CED is a nonprofit,
nonpartisan organization
of business leaders and
educators that has worked
for sixty years to address
the critical economic
and social issues facing
American society. A Statement by the Research and
Policy Committee of the
Committee for Economic Development REDUCING
GLOBAL POVERTY: Engaging the
Global Enterprise July 2003 A Statement by the Research and
Policy Committee of the
Committee for Economic Development Library of Congress Cataloging-in-Publication Data How economies grow : the ced perspective on raising the long-term standard of living : a statement on national policy / by the Research
and Policy Committee of the Committee for Economic Development. p. cm. Includes bibliographical references.
ISBN 0-00000-000-X 1. EconomicsUnited States. I. Committee for Economic Development. Research and Policy Committee. QA00.L00 2003
510.71073dc21 2003043432 First printing in bound-book form: 2003
Paperback: $15.00
Printed in the United States of America
Design: Rowe Design Group COMMITTEE FOR ECONOMIC DEVELOPMENT
261 Madison Avenue, New York, N.Y. 10016
(212) 688-2063 2000 L Street, N.W., Suite 700, Washington, D.C. 20036
(202) 296-5860 www.ced.org RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY.............................................iv PURPOSE OF THIS STATEMENT ........................................................................................................vi EXECUTIVE SUMMARY ..........................................................................................................................1 INTRODUCTION .....................................................................................................................................2 BACKGROUND .........................................................................................................................................5 WHY GLOBAL ENTERPRISES UNDERTAKE SOCIAL INITIATIVES ..............................................8 Enlightened Self-Interest..........................................................................................................................9
Positive Brand Identification/Goodwill...................................................................................................9
Labor MarketsAt Home and Abroad.................................................................................................10
Profitability................................................................................................................................................11 SOME LESSONS AND EXAMPLES OF CORPORATE ENGAGEMENT ..........................................13 Where and How to Spend? .....................................................................................................................13
How Much to Spend? ..............................................................................................................................14
How to Manage?.......................................................................................................................................15
How to Evaluate?...................................................................................................................................18 CONCLUSION .......................................................................................................................................20 APPENDIX
Selected Non-Governmental Organizations that Promote Corporate Social Engagement................21 ENDNOTES .............................................................................................................................................33 OBJECTIVES OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT.....................................34 iii CONTENTS The Committee for Economic Develop- ment is an independent research and policy
organization of some 250 business leaders and
educators. CED is nonprofit, nonpartisan, and
nonpolitical. Its purpose is to propose policies
that bring about steady economic growth at
high employment and reasonably stable prices,
increased productivity and living standards,
greater and more equal opportunity for every
citizen, and an improved quality of life for all. All CED policy recommendations must have the approval of Trustees on the Research and
Policy Committee. This committee is directed
under the bylaws, which emphasize that all
research is to be thoroughly objective in char-
acter, and the approach in each instance is to
be from the standpoint of the general welfare
and not from that of any special political or
economic group. The committee is aided by a
Research Advisory Board of leading social sci-
entists and by a small permanent professional
staff. The Research and Policy Committee does not attempt to pass judgment on any pending specific legislative proposals; its purpose is to
urge careful consideration of the objectives set
forth in this statement and of the best means of
accomplishing those objectives. Each statement is preceded by extensive dis- cussions, meetings, and exchange of memo-
randa. The research is undertaken by a sub-
committee, assisted by advisors chosen for their
competence in the field under study. The full Research and Policy Committee participates in the drafting of recommenda-
tions. Likewise, the trustees on the drafting
subcommittee vote to approve or disapprove a
policy statement, and they share with the
Research and Policy Committee the privilege
of submitting individual comments for publica-
tion. The recommendations presented herein are those of the Trustee members of the Research and Policy
Committee and the responsible subcommittee. They
are not necessarily endorsed by other Trustees or by
nontrustee subcommittee members, advisors, contrib-
utors, staff members, or others associated with CED. iv RESPONSIBILITY FOR CED STATEMENTS
ON NATIONAL POLICY Co-Chairmen PATRICK W. GROSS
Chairman, The Lovell Group
Founder and Senior Advisor, AMS BRUCE K. MACLAURY
President Emeritus
The Brookings Institution Vice Chairmen IAN ARNOF
Retired Chairman
Bank One, Louisiana, N.A. CLIFTON R. WHARTON, JR.
Former Chairman and Chief Executive Officer TIAA-CREF REX D. ADAMS
Professor of Business Administration
The Fuqua School of Business
Duke University ALAN BELZER
Retired President and Chief Operating Officer AlliedSignal Inc. PETER A. BENOLIEL
Chairman, Executive Committee
Quaker Chemical Corporation ROY J. BOSTOCK
Chairman Emeritus, Executive
Committee
Bcom 3 Group, Inc. FLETCHER L. BYROM
President and Chief Executive Officer
MICASU Corporation DONALD R. CALDWELL
Chairman and Chief Executive Officer
Cross Atlantic Capital Partners JOHN B. CAVE
Principal
Avenir Group, Inc. CAROLYN CHIN
Chairman
Commtouch/C3 Partners A. W. CLAUSEN
Retired Chairman and Chief Executive Officer BankAmerica Corporation JOHN L. CLENDENIN
Retired Chairman
BellSouth Corporation GEORGE H. CONRADES
Chairman and Chief Executive Officer
Akamai Technologies, Inc. RONALD R. DAVENPORT
Chairman of the Board
Sheridan Broadcasting Corporation JOHN DIEBOLD
Chairman
John Diebold Incorporated FRANK P. DOYLE
Retired Executive Vice President
General Electric T.J. DERMOT DUNPHY
Chairman
Kildare Enterprises, LLC CHRISTOPHER D. EARL
Managing Director
Perseus Capital, LLC W. D. EBERLE
Chairman
Manchester Associates, Ltd. EDMUND B. FITZGERALD
Managing Director
Woodmont Associates HARRY L. FREEMAN
Chair
The Mark Twain Institute BARBARA B. GROGAN
President
Western Industrial Contractors RICHARD W. HANSELMAN
Chairman
Health Net Inc. RODERICK M. HILLS
Chairman
Hills Enterprises, Ltd. MATINA S. HORNER
Executive Vice President
TIAA-CREF H.V. JONES
Managing Director
Korn/Ferry International EDWARD A. KANGAS
Chairman and Chief Executive Officer, Retired Deloitte Touche Tohmatsu JOSEPH E. KASPUTYS
Chairman, President and Chief Executive Officer Global Insight, Inc. CHARLES E.M. KOLB
President
Committee for Economic Development CHARLES R. LEE
Chairman
Verizon Communications ALONZO L. MCDONALD
Chairman and Chief Executive Officer
Avenir Group, Inc. NICHOLAS G. MOORE
Chairman Emeritus
PricewaterhouseCoopers STEFFEN E. PALKO
Vice Chairman and President
XTO Energy Inc. CAROL J. PARRY
President
Corporate Social Responsibility Associates VICTOR A. PELSON
Senior Advisor
UBS Warburg LLC PETER G. PETERSON
Chairman
The Blackstone Group NED REGAN
President
Baruch College JAMES Q. RIORDAN
Chairman
Quentin Partners Co. LANDON H. ROWLAND
Chairman
Janus Capital Group GEORGE RUPP
President
International Rescue Committee ROCCO C. SICILIANO
Beverly Hills, California MATTHEW J. STOVER
President
LKM Ventures ARNOLD R. WEBER
President Emeritus
Northwestern University JOSH S. WESTON
Honorary Chairman
Automatic Data Processing, Inc. DOLORES D. WHARTON
Former Chairman and Chief Executive Officer The Fund for Corporate Initiatives, Inc. MARTIN B. ZIMMERMAN
Group Vice President, Corporate Affairs Ford Motor Company v RESEARCH AND POLICY COMMITTEE *Voted to approve the policy statement but submitted memoranda of comment, reservation, or dissent, See page 41 vi THE PURPOSE OF THIS STATEMENT In May 2002, CED released a policy state- ment, A Shared Future: Reducing Global Poverty,
which called on leaders of global enterprises
to rally public and private support for a strategy to
overcome global poverty. This program state-
ment provides greater background and deep-
er analysis than could be attained in the initial
policy statement with regard to the role that
global enterprises play in developing coun-
tries and their engagement with those coun-
tries to achieve higher levels of economic
growth and standards of living. In addition,
this paper goes beyond the recommendations
of the original statement to recommend
further measures that U.S.-based global enter-
prises can take to help developing countries.
The paper also provides models of best prac-
tice and, in an appendix, a list of prominent
organizations (such as the U.N. Global
Compact) that are helping global enterprises
to implement these practices. ACKNOWLEDGEMENTS This program statement was developed by CED staff under the guidance of the co-chairs
of CEDs Subcommittee on Globalization,
Edmund Fitzgerald and Paula Stern. We are
grateful for the time, effort, and care they put
into the development of this report. The report was drafted by Elliot Schwartz, Vice President and Director of Economic
Studies at CED, with the able assistance of
Rebecca Solow and Megan Kormi. Sylvia
Ciesluk researched and prepared the
Appendix. Everett M. Ehrlich, CEDs Senior
Vice President and Director of Research,
supervised the project. Isaiah Frank, CEDs
Advisor on International Economic Policy,
contributed valuable comments. Patrick W. Gross, Co-Chair
Research and Policy Committee
Chairman, The Lovell Group
Founder and Senior Advisor, AMS Bruce K. MacLaury, Co-Chair
Research and Policy Committee
President Emeritus
The Brookings Institution CEDs report on global poverty, A Shared Future: Reducing Global Poverty, calls on busi-
ness leaders around the world to promote
constructive solutions to the problems of
poverty in the developing countries. Global
businesses generally support economic
growth, higher incomes, and reduced poverty
by their investments and operations in devel-
oping countries, including public-private part-
nerships, as well as through commercial trade
contracts and supplier networks. But a further
avenue of business support for economic
development is the engagement of global
companies. Corporate engagement covers a
range of concerns, from setting higher envi-
ronmental, ethical, and workplace standards
in normal business operations, to charitable
programs targeted at improvements in health,
education, and other aspects of human devel-
opment. Specifically, by corporate engage-
ment we mean: Support for fundamental human rights and avoiding business activities that abuse
human rights; Acting in a socially responsible manner, by supporting the laws, customs and traditions
of the countries in which a business oper-
ates, and contributing in a responsible man-
ner to the development of communities; Acting in a manner that minimizes the detrimental environmental impacts of
business operations; Supporting charitable, educational and community service activities; and Supporting international and local efforts to eliminate corruption and financial
crime. CED recommends that U.S.-based global enterprises strive to act at the same high
standards of corporate engagement in all coun- tries in which they operate, making no distinc-
tion in aspiring to reach those levels between
operations in the United States and abroad, yet
recognizing that specific actions need to take
into account national customs and traditions. Corporate policies and programs in devel- oping countries demonstrate the commitment
of forward-looking companies to raise social
standards and improve the quality of life, and
they counter accusations that global enterpris-
es are leading a race to the bottom. We rec-
ognize that not all global companies have
been as progressive or as quick to respond as
others. The performance of global enterprises
in developing countries has been uneven and
largely reactive to pressure from consumers,
workers, shareholders, non-governmental
organizations (NGOs), and governments.
Nevertheless, the trend is toward greater
awareness and action on the part of global
companies to help improve economic and
social conditions in developing countries. This
paper discusses how some global companies
are leading by example and offers models for
companies that may want to follow. Models of best practice suggest the following: We urge all U.S. companies that trade and invest with developing countries to take a
farsighted view of the totality of their rela-
tions and self-interest. That view ought to
confirm the wisdom of endeavoring to
reach the highest standards of corporate
engagement. We urge companies, in their role as employers, to search for options to raise
workforce norms and standards. Companies should consider expanding their ties to local communities by increas-
ing social engagement efforts. Such pro-
grams can build on the companys core
competencies, product characteristics, and
operational structures to accomplish social
objectives while building value for the
company. 1 EXECUTIVE SUMMARY Adapted from PricewaterhouseCoopers code of conduct, available at www.pwcglobal.com. Other corporate codes of
conduct express similar goals. In May 2002, CED published A Shared Future: Reducing Global Poverty, which called
broadly for global business, education and
social leaders to rally support for an attack on
global poverty. Specifically, the report called
on business leaders and their employees to
become involved in the leading educational
and social organizations that are promoting
constructive solutions to the economic,
health, and social problems of low-income
countries. Among other things, A Shared
Future demonstrated how leading global cor-
porations are contributing to anti-poverty
efforts in developing countries and highlight-
ed activities of public-private partnerships and
international business organizations to
improve the education and health of low-
income populations in developing countries.
This report elaborates further on those efforts
and suggests that while many firms are already
engaged in such efforts, more can reasonably
be done. Analysts often refer to these policies and programs loosely as corporate social responsi-
bility or business accountability. But the
term corporate responsibility has become
associated with accounting scandals and
corporate governance issues, and in some contexts social responsibility can imply
blame or fault for social ills that may be unre-
lated to business operations. This report uses
the term corporate social engagement to
describe the range of business interactions
with groups or communities to achieve devel-
opment goals. These interactions go beyond
the positive externalities that economists gen-
erally associate with foreign direct investment
(FDI) or trade. Corporate engagement
includes both operational policies that estab-
lish new (higher) norms within a market
framework and programs that tackle social
problems directly, often through charitable
channels outside of standard market arrange-
ments. Higher norm-setting occurs, for exam- ple, through the introduction of labor prac-
tices, such as the provision of education, child-
care, or health services, designed to improve
the quality and productivity of the work force.
A well-known example in the United States
was Henry Fords raising the wages of factory
workers in the early days of mass production
of automobiles. That market-based leadership
had tangible benefits both for the corporation
and for American society. 1 As shown below, 2 Introduction Business function by public consent, and
its basic purpose is to serve constructively
the needs of societyto the satisfaction of
society. SOURCE: CED, Social Responsibility of Business
Corporations (New York, NY: CED, 1971). We would exclude from this definition some activities
linked to the idea of corporate responsibility, even
though they help achieve social goals. Among them are
private philanthropy (such as the activities of private foun-
dations created by business leaders, rather than corporate
foundations), business activities that comply with existing
laws and regulations (for example, regarding worker
health and safety or financial reporting), or the pursuit of
a profitable line of business that fulfills a social need (for
example, companies that provide education, health, or
housing as a line of business), although these are all
important avenues of business support for development. similar corporate policies and programs are
taking root in developing countries. A difference, of course, exists between cor- porate activities in the OECD countries and in
developing countries. In the United States, for
example, there is very effective enforcement
of a vast number of rules, regulations and laws
that affect corporate behavior (from health
and safety in the workplace to the environ-
ment). By contrast, even where such rules,
regulations, and laws exist in developing coun-
tries, they often are not enforced. Domestic
corporate social behavior in developing
countries is far below the OECD average stan-
dardin part because they are mandated to
do so by enforced laws, regulations, and civil
litigation in the developed world. Such risks
rarely if at all confront companies in develop-
ing countries. Nevertheless, forward-looking
global corporations frequently strive to
adapt to local cultures and traditions, while
adhering in these countries to social and
environmental compliance standards that
they practice in their home countriessuch
actions tend to raise standards and serve as
models for corporate behavior in developing
countries. In many cases the development-promoting activities of global corporations are linked
with foreign direct investment; although, as
discussed below, joint ventures, subcontract-
ing, and other linkages also create opportuni-
ties for businesses to contribute to develop-
ment. FDI is perhaps the most important and
effective source of economic growth other
than domestic saving for developing countries
able to attract it. The central reasons are well-
established. 2 In short, FDI transfers resources and technology from the economically
advanced countries and has significant
spillover benefits in the form of improved
trade balances, increased levels of employ-
ment, improved productivity, and higher
domestic government tax revenues. Even
when it takes the form of a purchase of a
local firm, FDI typically enlarges the firm and
improves its efficiency by implementing new
management techniques and other modern- izations. Both directly and indirectly, FDI
can help to raise income, lower poverty, and
improve other indices of human develop-
ment. It is especially effective where
forward-looking companies make significant
contributions to economic and social
development through good corporate
practices. In contrast to other forms of capital inflows, FDI tends to be more stable because
it is committed for a longer duration. That
long-term commitment often carries with it an
overlooked benefit, namely, the involvement
and dedication of the foreign firm to the
improvement of the host country. In most
cases, the success of a foreign firms invest-
ment relies on the success of the local econo-
my, society, and polity. That is why FDI is
attracted to developing countries that strive
toward good governance and market friendly
economic policies and why some countries are
able to attract a relatively greater proportion
of FDI compared to the size of their economy
or overall capital investment. Once invested
for the long term, most foreign firms cannot
easily pull out of the country. That tends to
align the firms self-interest with the countrys
interest in realizing its development goals.
Although firms are not equally affected by
such incentives, most global enterprises based
in OECD countries and operating in develop-
ing countries establish policies and programs
that support and improve the economic, envi-
ronmental, political, and social performance
of the countries in which they operate. In part, their motivation is no different than that
of domestic firms, which may also establish
such programs. But the foreign firm is typical-
ly larger and more vulnerable than the domes-
tic firm to regulatory or political bias. It is also
subject to public opinion in its home country,
which may create pressure for the firm to 3 Introduction As noted, not all such programs are based on FDI.
Corporate social programs derive from various sources
and motivations. All, however, require some company
presence in the affected nation, even if only through
contractual relations with subcontractors. 4 REDUCING GLOBAL POVERTY maintain a good reputation by engaging in
social programs in host countries. Thus, it
may have added incentive to create goodwill
within the host country by adopting high-pro-
file policies and programs that show its com-
mitment to the domestic economy and society. The motivation and commitment of corpo- rations to the goals of poverty reduction and
economic and social advancement have been
the subject of much debate and analysis. Some
of todays leading practitioners of corporate
social engagement, especially among firms in
the extractive industries, have historically
been closer to the lagging rather than the
leading edge of enlightened behavior. Several
firms in the apparel industry and retail trade
have been hit with harsh publicity about labor
practices of sub-contractors. Thus, in many
cases, the concerns exhibited by global busi-
nesses for improvement in social conditions
results from the need to restore a tarnished
image or make amends for previous behav-
iors. The depth of business commitment to
social progress has also been questioned.
Many social activists question whether corpo-
rations are interested only in the public rela-
tions benefits of their social programs. Based
on the evidence gathered for this report and
our own experience, we conclude that the
range of activities, motivations, and commit-
ments on the part of global business is very
broad. The most forward-looking companies
have established policies and made commit-
ments that permeate the corporation from the
Board and CEO levels on down to the very
lowest stratum of the company. Others have
yet to understand fully the business case for
corporate social engagement and have not embraced such policies. Further, even those
companies that strive to achieve the highest
standards of corporate engagement can fall
short on occasion. Two polar views typically shape the discus- sion of corporate social engagement. As
already suggested, one view holds that busi-
nesses have a duty or responsibility to pro-
mote the social good. The other maintains
that corporations have no social roles other
than their basic economic functions and obe-
dience to local and national laws. As put by
Milton Friedman, there is but one and only
one social responsibility of businessto use its
resources and engage in activities designed to
increase its profits so long as it stays within the
rules of the game. 3 CEDs long-held view- point is that businesses are important societal
institutions that shape, and are shaped by,
their environments. As economic institutions,
they must pursue activities that ultimately add
to their bottom lines, but the scope of such
activities is much broader than generally con-
ceived. Almost without exception, good corpo-
rate engagement is beneficial both for the
firm and for the economy and society overall. There is broad recognition today that cor-
porate self-interest is inexorably involved in
the well-being of the society of which busi-
ness is an integral part, and from which it
draws the basic requirements needed for it
to function at allcapital, labor, cus-
tomers. SOURCE: CED, Social Responsibilities of Business
Corporations. This paper is focused on the social engage- ment of global enterprises in developing coun-
tries. The activities of global enterprises have drawn interest because of the great potential
they have to contribute to goals of economic
development and the integration of developing
countries with more advanced economies. Most
important, transfers within global enterprises
account for the bulk of FDI flows to developing countries. Net FDI flows to developing coun-
tries have increased considerably in the past
decade, rising each year from 1991 to 1999
(followed by a small drop in 2000 and 2001).
The average net FDI inflow over the period
from 1991-1995 was $69.3 billion, increasing to
$168.9 billion for the period from 1996-2000. As shown in Table 1, the number of global enterprise affiliates in developing countries
makes them a significant presence in many
countries. There are nearly 500,000 foreign
affiliates in developing countries, about
125,000 excluding China. Most are located in
South, East, and Southeast Asia. These affiliates
represent a rich and diversified base for pro-
moting economic and social development in
low-income countries. 5 Background A global enterprise (sometimes referred to as a multina-
tional or transnational corporation) is an organization that
operates in multiple nations through foreign direct invest-
ment, or affiliated or non-affiliated suppliers and sub-con-
tractors, that are subject to a substantial degree of central
control. Global enterprises capture economies of scale or
scope through operational leverage leading to lower unit
costs, or through marketing leverage using the value of
brand names. Number of Parent Corporations and Foreign Affiliates,
by Area and Economy, Latest Available Year Table 1 Parent corporations Foreign affiliates Area/economy based in economy located in economy World 64,592 851,167 Central and Eastern Europe 850 255,825 Developed Economies 50,250 100,825 Developing Economies 13,492 494,900 Minus China 13,133 131,015 Africa 1,156 6,100 Latin America & the Caribbean 2,022 27,577 South, East, and South-East Asia 9,834 450,607 China 379 363,885 Other Asia (including Middle East) 480 10,616 SOURCE: United Nations Conference on Trade and Development (UNCTAD), World Investment Report 2002
(New York, NY: UNCTAD, 2002). Three critical points about FDI need to be stated at the outset. First, the role of foreign-owned businesses in promoting social development can only
be supportive of local efforts; the primary
impetus for social and economic change
must come from local social, political, and
economic leaders. Foreign-owned busi-
nesses typically account for a very small
percentage of a countrys total economic
activity. Local conditions, institutions, and
policies are the main determinants of
economic development. Second, global firms characteristically generate positive economic effects through
the normal conduct of business when they
establish a business presence in a develop-
ing country. Such firms transfer financial,
managerial, scientific, and technical
resources from the more economically
developed countries. FDI increases
competition in local product and labor
markets, which puts pressure on domestic
firms to improve efficiency. In many cases,
foreign firms provide basic goods and
services such as housing, health care,
education, water, and electricity. Third, although many observers have described corporate social engagement in
terms of a conflict between profit and
moral or humanitarian motives, the over-
riding rationale for any corporation must
be based on its understanding of its own
self-interest. Although social engagement initiatives may not translate directly into
profits in the short term, they generally
produce benefits for the firm and ultimate-
ly add to the bottom line. Our expectation
is that upon full evaluation many businesses
will find that the net benefits more than jus-
tify their engagement in social initiatives. In contrast to the often-repeated accusa- tion that global enterprises are promoting a race to the bottom by lowering global stan-
dards, especially with regard to environmental
and labor conditions, the reality is that in
many cases corporations are leading a rise in
such social standards. Although the historical
record is far from perfect, many leading glob-
al enterprises now are establishing progressive
social programs in countries in which they
operate. As they expand from their home base
to developing countries, social engagement
policies and programs expand with them.
Such efforts extend the benefits of globaliza-
tion and help to ensure that those benefits
will accrue to local populations. Although social activities are voluntary on the part of business, governments of the
advanced economies have taken steps to
encourage and promote such activities. For
example, most governments allow a tax
deduction or credit for charitable donations.
Governments also use various forms of public
advocacy and moral suasion to promote good
corporate engagement. The broadest effort to
influence the conduct of global enterprises is
encompassed in the OECD Guidelines for
Multinational Enterprises. These guidelines
are recommendations on appropriate business
conduct by global enterprises. As part of the
OECD Declaration on International
Investment and Multinational Enterprises,
they provide a framework intended both to
improve the international investment climate
and to encourage the positive contributions of
global enterprises to economic, social and
environmental goals. The general policies of
the guidelines are reproduced in the follow-
ing box. The OECD Guidelines are far from the only effort to influence corporate behavior in
developing countries. Another important mul-
tilateral, and tripartite (government/busi-
ness/labor), effort is the International Labor
Organizations (ILO) Tripartite Declaration of
Principles Concerning Multinational Enterprises
and Social Policy, known as the MNE
Declaration. The MNE Declaration is a set of
voluntary guidelines and commitments by
each of the three participating groups in such 6 REDUCING GLOBAL POVERTY As put by Adam Smith, It is not from the benevolence of
the butcher, the brewer, or the baker that we expect our
dinner, but from their regard to their self-love, and never
talk to them of our own necessities but of their advantages. areas as development policy, rights at work,
and industrial relations. In addition, various
business associations and individual businesses
have developed codes, guidelines, and princi-
ples to encourage and support corporate
social engagement. Among other prominent
international organizations promoting such
activities are the U.N. Global Compact, the
World Economic Forums initiatives on
Corporate Citizenship and Global Health, the
Corporate Social Responsibility Forum, and
Business for Social Responsibility. (See
Appendix for an illustrative list and descrip-
tions of such organizations, their member- ships, and activities.) Increasingly, firms within
well-defined sectors, such as apparel manufac-
turing and mining, are joining specific initia-
tives to establish standards of conduct within
their industry. (Examples include the Fair
Labor Association, successor to the White
Houses Apparel Industry Partnership, which
addresses workplace standards and the
Voluntary Principles on Security and Human
Rights, established by the mining and extrac-
tive industry.) In many respects these efforts,
taken together, create a form of soft rules
that, although voluntary, nonetheless govern
(normalize) corporate social behavior. 4 7 Background Enterprises should take fully into account established policies in the countries in which they operate, and consider the views of other stakeholders. In this regard, enterprises should: 1. Contribute to economic, social and environmental progress with a view to achieving sustainable development. 2. Respect the human rights of those affected by their activities consistent with the host governments international obligations and commitments. 3. Encourage local capacity building through close co-operation with the local community, including business interests, as well as developing the enterprises activities in domestic and
foreign markets, consistent with the need for sound commercial practice. 4. Encourage human capital formation, in particular by creating employment opportuni- ties and facilitating training opportunities for employees. 5. Refrain from seeking or accepting exemptions not contemplated in the statutory or regulatory framework related to environmental, health, safety, labor, taxation, financial
incentives, or other issues. 6. Support and uphold good corporate governance principles and develop and apply good corporate governance practices. 7. Develop and apply effective self-regulatory practices and management systems that foster a relationship of confidence and mutual trust between enterprises and the societies in
which they operate. 8. Promote employee awareness of, and compliance with, company policies through appropriate dissemination of these policies, including through training programs. 9. Refrain from discriminatory or disciplinary action against employees who make bona fide reports to management or, as appropriate, to the competent public authorities, on
practices that contravene the law, the Guidelines or the enterprises policies. 10. Encourage, where practicable, business partners, including suppliers and sub- contractors, to apply principles of corporate conduct compatible with the Guidelines. 11. Abstain from any improper involvement in local political activities. SOURCE: OECD, OECD Guidelines for Multinational Enterprises: Ministerial Booklet (Paris: OECD, 2000), p. 19. OECD GUIDELINES FOR MULTINATIONAL ENTERPRISESGENERAL POLICIES The relationship between business and society is more complex than generally repre-
sented by economic models. Although analysts
find it convenient to consider aspects of the
economy and society separately, in the real
world no such division exists. In the United
States and most other countries private enter-
prises produce the vast majority of goods and
services, but they do so in the context of social
and political structures that set the rules and
norms for business activity. And businesses are
in turn affected by social customs and govern-
ment policies, which shape and influence con-
sumer tastes and workforce abilities and regu-
late business operations. Business enterprises, therefore, are more than just economic entities. They must navi-
gate their way through both formal and infor-
mal channels of influence. And, in the most
positive sense, they must seek to shape their
surroundings to improve them and make
them more conducive to long-term success. To function efficiently as an economic enti- ty, the corporation must build a consensus
among numerous groups, including: stock-
holders, management, work force, customers,
suppliers, bankers, financiers, communities, and various levels of government. Corpor-
ations must therefore be sensitive to
conditions in the society around them and
to the expectations of shareholder and stake-
holder groups. Engagement and leadership aimed at strengthening society may not
ordinarily contribute immediately to profits,
although there is evidence that it can have
short-term paybacks as well. Most important,
it can strengthen the longer-term viability
and financial success of the enterprise. The question of whether a private, com- mercial enterprise should engage in socially
beneficial programs must be answered by each
business itself. But the large number of busi-
nesses that answer that question affirmatively
verifies that sufficient business reasons exist.
Motivations run the gamut from proactive
brand identification with social causes to
strictly defensive measures to ensure against
negative publicity and consequent lost sales.
In some instances, especially when they find
themselves in conflict situations, businesses
may feel they have no choice but to play a
positive role in supporting social stability and
better governance. Not all global businesses,
of course, are inspired to implement policies
or programs that respond to local conditions.
Circumstances differ among developing coun-
tries and various lines of business. Some firms
have a more narrow and, in CEDs view, short- 8 Why Global Enterprises
Undertake
Social Initiatives The corporation is essentially a political
institution, whatever its economic objectives
may be. Alfred C. Neal CEDs first President SOURCE: Fundamental Issues in Business Structure
and Performance, in Clarence C. Walton, ed., Business
and Social Progress: Views of Two Generations of Executives
(New York: Preager, 1970). In todays economy shareholders often include those usu-
ally thought of as stakeholders, for example employees,
civil society non-profit organizations, and other activists
who may hold stocks through pension funds, trusts, social-
ly oriented mutual funds, or other means and have an
interest in promoting social causes through corporate
conduct. sighted perspective based strictly on the
exploitation of local resources. In addition,
smaller firms may be less able than larger
firms to afford social programs, or, at least,
their programs will of necessity be smaller.
Below, we set out a few of the reasons that
have motivated global businesses to become
more socially engaged. ENLIGHTENED SELF-INTEREST Perhaps the simplest and strongest explana- tion for why firms go beyond narrow-gauged
market activities is because it is right and
serves the longer-term interests of the society,
which in turn benefits the longer-term inter-
ests of the business by creating a more stable
environment, good will, and brand identity. Many business leaders cite humanitarian motives for social activities, and these are
clearly important. But businesses are unlikely
to be motivated solely or consistently by altru-
istic appeals. They are neither charitable nor
government institutions, and they should not
be expected to act as if they were. Neverthe-
less, businesses prefer to operate in more sta-
ble political and economic environments. A
businesss success is often tied to the success
of the country in which it operates, either
directly or through supplier relationships. A
stable, non-corrupt government and society
provide a less risky climate for investment and
trade. A more educated and healthier popula-
tion is more likely to supply a productive and
reliable labor force. Populations with higher incomes generate more consumer demand for
the products and services businesses sell.
Thus, many businesses see their engagement
as enriching these environments in order to
improve them as markets, investment locales,
or sources for labor or materials. At a practical
level, as firms gain experience and deepen
relationships in developing countries they
often find that upgrading their social policies
and programs becomes more important. POSITIVE BRAND
IDENTIFICATION/GOODWILL Some firms undertake social initiatives to enhance their brand image; some act to
defend their brand against negative publicity;
some have built their brand based on identifi-
cation with social causes. To varying degrees
these motivations are all based on the value
that consumers place on a companys image
and reputation. The value of its brand can be
a significant asset to a firm, since strong
brands have the power to lift sales and earn-
ings. One business-consulting group (Inter-
brand) estimates that in 2002 the worlds 10
most valuable brands had a combined asset
value of $388 billion. 5 Various studies suggest that among other product traits, consumers
value products and companies that adhere to
social standards such as child-labor-free cloth-
ing and environmentally sound production
processes. 6 Whether the company acts posi- tively to burnish its reputation or defensively
to overcome or prevent negative publicity,
brand value can be an important motivation
for social involvement. Such efforts may be
aimed either towards host or home markets.
Consumers in developing countries represent
a fast growing segment of many markets.
Positive brand recognition based on iden-
tifications with social engagement can be
important in building consumer loyalty in
those markets. In addition, as discussed below,
goodwill can have a direct payback, as local
governments may examine the totality of their
relationships with a company when making
regulatory or licensing decisions. 9 Why Global Enterprises Undertake Social Initiatives This process of adaptation of business
structure and performance to the changing
requirements of society can be facilitated
greatly by the development of a clearer
corporate rationale of the role business
must play in the national communitya role
as a responsible participant determined to
resolve any conflict with human values or
the social environment. SOURCE: CED, Social Responsibility of Business
Corporations. LABOR MARKETSAT HOME
AND ABROAD Tight labor markets for skilled workers in developing economies lead firms to improve
local labor conditions. Firms might, for exam-
ple, simply provide higher compensation
either in the form of higher wages or
improved fringe benefits such as the provision
of health services to attract and retain a work-
force. Although labor markets characterized
by excess supply provide less of an incentive
for such benefits, they do not necessarily
inhibit business activities in this area. In many
cases businesses are investing in the education
and training of their workforce to improve
quality and productivity or to improve other
aspects of the work environment. The AIDS
programs of Volkswagen do Brasil and Daimler-Chrysler of South Africa provide
good examples of how a firm can help itself
by addressing a social problem (See boxes).
Mining companies in South Africa have
recently implemented similar programs. Similar considerations in a global enter- prises home market, based on the need to
retain and attract talented individuals, have led
firms to support social programs that benefit
developing countries. Firms that identify their
brand with a social cause, such as no sweat
labor conditions and green environmental
practices, are often more attractive to prospec-
tive employees, especially recent college gradu-
ates, than are firms with negative reputations.
In addition, many U.S. firms provide employ-
ees with paid time off from work to engage in
volunteer activities that among other causes
have benefited developing countries. 10 REDUCING GLOBAL POVERTY Brazil has one of the hightest rates of HIV/AIDS infections in South America, with 540,000 reported cases of HIV and 18,000 deaths from AIDS. Of the 330,000 children
orphaned by AIDS in Latin America, more than one-third live in Brazil. Unsurprisingly, AIDS
has a significant negative impact on the productivity of Brazilian firms through hospitaliza-
tion, absenteeism, and shortened life expectancies. To combat the negative impact of AIDS,
Volkswagen do Brasil launched an AIDS Care Program in 1996 aimed at reducing the spread
and effects of the disease. Volkswagen quickly found that it was far more profitable to educate
and treat its employees than to recruit and train new ones and the program quickly raised the
quality of life for Volkswagen factory employees. The AIDS Care Program focuses both on prevention and treatment. Volkswagen uses the communication channels available within the company to educate workers about the dangers
of AIDS and how to prevent the disease. Condom dispensers were also installed in factory
bathrooms. The firm provides free medical treatment, clinical support and confidential coun-
seling to workers already infected with HIV. This includes company-provided anti-retrovirals
and other cutting-edge prescription drugs. Along with constructing a clinic to treat its work-
ers, Volkswagen also provided a mobile care unit that visits the homes of workers to ill to trav-
el to the clinic. Treatment extends to workers families and retired employees as well; while
Volkswagen employs 30,000 workers, there are over 100,000 Brazilians on the company health
plan. By 1999, Volkswagen was able to quantify significant positive results from the AIDS Care Program. Hospitalizations among employees were reduced by 90 percent and AIDS-related
costs were cut by 40 percent. Volkswagen also noted a high participation in the program,
greater disease prevention, and better quality of life for employees and their families.
Volkswagens efforts in fighting the AIDS epidemic earned it the Excellence in Corporate
Response award from the Global Business Council on HIV/AIDS in 1999. SOURCE: The Global Business Coalition on HIV/AIDS, available at <http://www.gbcaids.com>
Accessed July 30, 2002. FIGHTING HIV/AIDS: VOLKSWAGEN DO BRASIL PROFITABILITY Numerous studies have linked corporate social activities to better business perfor-
mance, as measured by profitability or return
on equity, and evidence of a narrowly defined
business case for social engagement,
although weak in some dimensions, is clearly
positive. 7 In addition to various studies that link corporate social commitments to
improved financial performance, three simple
observations are relevant. First, mutual funds
that invest in socially screened firms (once
valued at about $2 trillion) do no worse and
often much better than more broadly based
funds. 8 Second, the simple fact that many firms choose to engage in social initiatives,
even if they cannot measure their specific con-
tribution to financial performance, suggests
that they can justify such activities on financial
grounds. Indeed, some contributions, such as
donations of depreciated equipment or excess
inventories, are easily justified because they
are eligible for a tax deduction. Finally, anec- dotal evidence links political and social good-
will generated by corporate engagement to
short-term payoffs in the forms of faster licens-
ing and regulatory approvals, greater flexibili-
ty on the part of government authorities, and
contracts granted on the basis of selection
criteria that favored firms committed to social
improvement. 9 Some social activists have promoted a broader definition of the business case
through the concept of a triple bottom line
of sustainable development which focuses on
society, economy, and environment. 10 (See Box.) Others, such as Transparency
International, Human Rights Watch, and
Greenpeace, have emphasized the importance
of shareholder activism in support of social 11 Why Global Enterprises Undertake Social Initiatives In 2000, Daimler-Chrysler institut- ed a similar AIDS workplace strategy
at its operations in South Africa,
where it is expected that the portion
of the population infected with HIV
will reach 25 percent by 2006. The
companys multi-faceted strategy
involves collaboration with trade
unions, service providers, and govern-
ment to reduce the spread and impact
of AIDS through education, preven-
tion, and treatment. Following a two-day conference for employee representatives and other
stakeholders, Daimler-Chrysler imple-
mented an education and prevention
program that includes training 132
employees as peer-educators, promot-
ing voluntary testing and counseling,
and educating employees in the use of
condoms. This portion of the AIDS
program will extend into local com-
munities through health education
and awareness campaigns, improving
community health care centers, and
training traditional healers, medical
doctors, and health workers in educa-
tion, monitoring, and treatment.
Daimler-Chrysler has also pledged to
provide free prescription drugs to
employees already infected with
HIV/AIDS and to provide health care
for employees suffering secondary
infections as a result of AIDS. The
firms program is unique in that it
focuses on testing and evaluation,
using baseline research, surveys and
other assessments to ensure that com-
pany policies are appropriate and
effective. It was the first industrial
employer in South Africa to offer anti-
retroviral therapy. Daimler-Chryslers
CEO, Jurgen E. Schrempp, was recent-
ly appointed as Chairman of the
Global Business Coalition on
HIV/AIDS in recognition of the com-
panys prevention and care program. SOURCE: The Global Business Coalition on
HIV/AIDS FIGHTING HIV/AIDS:
DAIMLER-CHRYSLER The weaknesses stem mainly from methodological short-
comings of the various academic studies, including the
issue of whether social engagement is responsible for
higher profits or the other way around. See, for example, Gifts In Kind International, detailed in
the Appendix. 12 REDUCING GLOBAL POVERTY causes and the need for public corporations
to respond to shareholder interests. 11 Shareholder activism is supported by such
organizations as the Investor Responsibility
Research Center (IRRC), a source of indepen-
dent research on corporate governance, proxy
voting, and corporate responsibility issues. 12 Broadly demonstrated, strong shareholder
interest provides a significant business motiva-
tion to include social leadership indicators in
measures of business success. The success of
the original Sullivan Principles at enlisting
corporate support for social change in South
Africa is a prime example of the force of
shareholder activism. The triple bottom line focuses cor- porations not just on the economic
value they add, but also on the envi-
ronmental and social value they add
and destroy. At its narrowest, the
term triple bottom line is used as a
framework for measuring and report-
ing corporate performance against
economic, social and environmental
parameters. At its broadest, the term is
used to capture a set of values, issues
and processes that companies must
address in order to minimize any
harm resulting from their activities
and to create economic, social and
environmental value. This involves
being clear about the companys
purpose and taking into consideration
the needs of all the companys stake-
holders shareholders, customers,
employees, business partners, govern-
ments, local communities and the
public. SOURCE: SustainAbility, What is the Triple Bottom
Line?, available at <http://www.sustainability.com/
philosophy/triple-bottom/tbl-intro.asp>
Accessed July 30, 2002. WHAT IS THE TRIPLE BOTTOM LINE? Experience and research have raised some important issues with regard to corporate
social activities, both for firms that engage in
them and countries that receive them: includ-
ing where and how to spend, how much to
spend, how to manage, and how to evaluate. 13 Below, we examine these questions and pro-
vide some illustrative examples of corporate
programs. WHERE AND HOW TO SPEND? No rules dictate to firms where or how they should spend in social programs, but as dis-
cussed above, substantial guidance exists
through the Global Compact, OECD Code of
Conduct, and other organized efforts to help
inform their decisions. Such decisions depend
on the country context, the nature of the busi-
ness enterprise, its size, visibility, and motiva-
tions for acting, the costs and benefits to be
derived, and the nature of the relationship
between the business and the social initiative.
For example, the social initiatives conducted
by most firms take place where the firm has
invested and set up local facilities. However,
many retail-based firms, such as Levi Strauss,
Nike, Target, and Wal-Mart, are primarily con-
cerned about the behaviors of subcontractors
in countries where, although they have no
physical presence of their own, consumers
have linked negative practices to their brands.
These firms have instituted company policies,
such as contractor codes, and specific remedi-
al programs aimed at improving conditions or
moderating sub-contractor practices in those
countries. Some firms have established programs that are closely related to their principal business
activity and thus build on their specific core
competence. For example, pharmaceutical
companies such as Merck and Pfizer have pro-
moted health related programs in Africa and
other developing countries, through dona-
tions of medicines, price concessions, subsi-
dization of clinical training, funding of health
infrastructure and other mechanisms whose
principal aim is to enhance access to quality
health care. As demonstrated below, both
companies have taken the lead in health pro-
grams that seek to improve health outcomes
for patients in the host countries. (See box.) The nature of the companys operations, rather than its product, can also play a signifi-
cant role in determining the types of social
activities undertaken, regardless of location.
FedEx and UPS, which operate large air fleets,
have found that they can reduce environmen-
tal impacts (high fuel consumption and noise
pollution) and save money by using quieter
and more fuel-efficient engines. Both compa-
nies have worked with the Alliance for
Environmental Innovation on initiatives
aimed at decreasing waste, noise, and other
forms of pollution that result from their oper-
ations. In addition, FedEx and UPS are com-
panies with high fixed-cost distribution chan-
nels and are able to use those channels at low
marginal costs to distribute highly valued
social goods and services. (See box.) Similarly,
Coca-Cola has agreed to use its extensive dis-
tribution network in Africa to support local
AIDS prevention, education, and treatment
programs. 14 13 Some Lessons and
Examples of Corporate
Engagement HOW MUCH TO SPEND? Returns on social spending are either poorly measured or generally long-term in
nature. Thus, no easy answer exists to the
question of how much of its resources a firm
should devote to such spending. The limit on
social spending by businesses is a question for
each business to answer based on its judgment of the benefits, but there is little doubt that
many businesses can do more, especially con-
sidering that some start from zero. Although it is relatively easier to identify social activities that take the form of discrete,
charitable programs, the leading edge social
practices directly related to labor, environ-
ment, and other production-based standards
are probably more significant in terms of 14 REDUCING GLOBAL POVERTY Pfizer, Inc. Academic Alliance for AIDS Care and Prevention in Africa In 2001, Pfizer announced a collaborative effort with the Infectious Diseases Society of America (IDSA) to establish the first large-scale, comprehensive HIV/AIDS clinic in Africa.
Pfizer is providing funding and staff support for a medical training and treatment facility at
Makarere University in Kampala, Uganda. Pfizers stated goal in the collaboration, called the
Academic Alliance for AIDS Care and Prevention in Africa, is to strengthen medical infra-
structure, replicate it across Africa and bring the latest medicines to bear on treating
[HIV/AIDS] so that African doctors and nurses can offer modern AIDS care to their
patients. The Alliance plans to treat 50,000 HIV/AIDS patients in its first two years, using
advanced treatments currently unavailable in Africa or other developing regions, with a target
of training at least 80 clinicians per year in AIDS treatment techniques. The Alliance will use the support of local governments and existing medical infrastructure. In addition to providing medical training and diagnostic and treatment services, the Alliance
will be conducting research at the clinic into which AIDS drug cocktails are best suited to
treatment of HIV/AIDS patients in Africa. Merck African Comprehensive HIV/AIDS Partnerships (ACHAP) in Botswana In keeping with Mercks desire to undertake public and private partnerships to address the impact of diseases in resource-scarce settings, a public-private partnership between the
Government of Botswana, the Bill & Melinda Gates Foundation and Merck & Co., Inc. was
established in 2000. The mission of ACHAP is to work with the Government of Botswana to
develop and implement comprehensive HIV/AIDS strategies that address prevention, care,
treatment and support. The Merck Company Foundation and the Gates Foundation each are
contributing $50 million over five years to advance the treatment, care and prevention of the
disease in the Republic of Botswana, where nearly one in three adults is HIV-positive. Merck is
also donating its antiretroviral medicines to support treatment initiatives for the duration of
the program. By working with the Government of Botswana in this country-led partnership, Merck believes that it can help expand delivery of prevention and care services across a continuum
from home to facilities and improve access to treatment with antiretroviral medications and
drugs for opportunistic infections. This is requiring significant investment in the building of
health care infrastructure and human resource capacity, including the education and training
of medical personnel, counselors and teachers in Botswana. At the end of this five-year com-
mitment through ACHAP, Merck hopes to have strengthened sustainable improvements in
the health care system in Botswana and build overall capacity in the response of government,
private sector and civil society to the HIV/AIDS crisis in Botswana. SOURCE: Pfizer, African and Western Alliance to Build First Large-Scale AIDS Medical Training Facility in Africa, available at
<http://www.pfizer.com/are/news_releases/mn_2001_0611.html> Accessed July 30, 2002; Merck, African Comprehensive
HIV/AIDS Partnerships (ACHP) in Botswana, available at <http://www.merck.com/about/cr/policies_ performance/
social/hiv_aids_partnership.htm> Accessed July 30, 2002 MERK AND PFIZER CREATE PROGRAMS TO ATTACK HIV/AIDS IN AFRICA 15 Some Lessons and Examples of Corporate Engagement impact. For example, global enterprises oper-
ating in developing countries frequently pay
more and have higher working standards than
the national norm. Wages paid by global
enterprises to workers in the manufacturing
sector in low-income countries are on average
double that of their counterparts working for domestic firms. 15 Royal Dutch/Shell reports that the lowest wage it paid to any of its
employees worldwide in 2001 was $50 per
month plus $18 transport allowance and med-
ical and life insurance benefits in an African
country, compared to the local minimum
wage of $28 per month. 16 Such workplace practices, which set higher domestic norms,
can have significant, lasting, and beneficial
impacts on the local economy. The impact of
such programs comes from their direct inte-
gration into a firms operations and the
demonstration effect they can have in pulling
other firms upwards towards their standards.
However, such integration makes it virtually
impossible for them to be quantified. (See
box.) Corporate philanthropy lends itself toward better quantification, although reporting is
poor and disaggregation between domestic
and international programs is limited. Within
the United States, corporate and personal
philanthropy is focused overwhelmingly on
domestic causes. In 1990, international causes
received 1.3 percent of all private giving.
However, a shift toward international causes is
discernable, as total charitable giving between
1998 and 2001 rose by 12 percent, and giving
to international causes rose by 32 percent. 17 HOW TO MANAGE? Social engagement must be managed by the corporation in a manner that simultane-
ously provides benefits for recipients and for
the corporation. Clearly, activities that are
integral to company operations are managed
within the company. Some charitable pro-
grams are also managed directly by the corpo-
ration; others are formed as joint partnerships
with NGOs, governments, and multinational
institutions such as the World Bank. To assist in managing social programs, sev- eral of the organizations concerned with such
programs have established management hand-
books, guidelines, and codes of conduct. Most
maintain websites, which contain useful infor-
mation and case studies of successful efforts. FedEx and UPS have received numer- ous awards for social leadership initiatives
ranging from helping to employ citizens
on welfare to providing hundreds of
employee volunteer hours. They are
especially good role models for compa-
nies that want to use their existing infra-
structure to provide community benefits.
Both FedEx and UPS mobilize their
far-reaching distribution systems to
deliver aid to communities in need and
to support volunteer efforts. FedEx and UPS both possess a global network of vehicles used to provide ship-
ping services. Because the shipping busi-
ness is a high fixed-cost industry, each is
able to donate use of their vehicles at a
very low incremental cost. Both compa-
nies participate in disaster relief and
fund-raising efforts worldwide. FedEx
partners with organizations such as the
American Red Cross in providing compli-
mentary shipping and storing of emer-
gency supplies. They delivered more than
134,000 pounds of relief supplies to
refugees in Afghanistan. UPS de Mexico
recently participated in a fundraiser
aimed at collecting basic necessities such
as food, cleaning supplies, school sup-
plies, and clothing for children living
with serious diseases or in extreme
poverty. UPS employees collected goods
for the drive and volunteered vehicles
and drivers to transport the goods from
drop-off points to the main collection
center. The company also donated
10,000 boxes and packing materials. SOURCE: FedEx, Social Responsibility, available at
<http://www.fedex.com/us/about/overview/
responsibility> Accessed July 30, 2002; UPS, Global
Community Relations, available at <http://www.com-
munity.ups.com/community/causes/global_rela-
tions/americas.html> Accessed July 30, 2002. FEDEX AND UPS USING EXISTING
DISTRIBUTION CHANNELS For example, the UN Global Compact main-
tains a learning bank and other information
databases to help businesses that want to
achieve social goals. Similarly, a Good
Practice Manual has been prepared by the
International Finance Corporation (IFC) to
provide guidance to private sector entities
operating under IFC programs. The handbook emphasizes public disclosure of
information, consultation with the public, and
operating in a manner that is sensitive to local
environmental and social goals. Companies
receiving IFC support are required to comply with stringent labor and environmental stan-
dards. The handbook, however, could also be
a useful guide for companies not operating
under IFC auspices. Other, private, organizations have estab- lished codes and certifications that can help
firms integrate social considerations into their
operational policies. Many individual firms
establish their own codes or statements of
principles. Other codes are the product of
international agencies. Still others are created
by NGOs. A recent survey by the OECD iden-
tified 246 codes, which set forth standards and
principles for business conduct. 18 (See box.) All are intended to help the firm improve
its management of labor, environment, and
other social issues and give the firm recogni-
tion for its compliance with such standards. 16 REDUCING GLOBAL POVERTY When corporations expand or transfer operations from a more developed country to a less developed one, it can often have the effect of improving labor conditions in the develop-
ing country by raising the bar for workplace standards. Corporations from more developed
countries are accustomed to stricter labor requirements and also possess the resources to
implement them. While many companies take advantage of the lower labor costs in develop-
ing countries, they can still afford to offer working conditions well above the local norm. This
results in improvements for local workers such as higher wages, cleaner and safer working
conditions, increased training, and better health care. The Philippines In the Philippines, the government has gone to much effort to make the country a wel- coming place for business by enacting tax incentives and by ensuring that the population is
skilled in technology and proficient in English. Information technology (IT) companies
rewarded these initiatives by flooding the country with new jobs in customer service call cen-
ters, wireless applications development, and a number of other technology-related industries.
The Philippines are now widely regarded as one of the leading IT and customer service man-
agement centers in Asia. The country has outpaced many developed nations, such as Israel or
France, in the export of high-tech products. Jobs like those offered at the America Online (AOL) customer service center offer many Filipinos an escape from poverty. Before the IT deluge, many college graduates with degrees
in technical fields were forced to take jobs as clerks or factory workers, while others remained
unemployed. The AOL call center alone employed 900 Filipinos, paid triple the local mini-
mum wage and provided its employees with other benefits such as a free bag of rice twice a
month, health care, and one meal a day. The employees also received free phone and
Internet services, which most did not have access to at home. SOURCE: Thomas L. Friedman, Fear and Opportunity: Globalization Can Alleviate Poverty, The Plain Dealer,
October 2, 2000, p. 9B; Friedman, ITs Bright Future, The Manila Standard, July 1, 2000. RAISING WORKPLACE STANDARDS The IFC is the private sector arm of the World Bank
Group. Its focus is to promote economic development
by encouraging the growth of productive enterprise and
efficient capital markets in its member countries. For example, ISO 14000 is a set of voluntary
standards under the auspices of the
International Standards Organization (ISO)
that address technical issues in environmental
management systems, auditing, labeling, per-
formance evaluation, and life cycle assess-
ment. AccountAbility (see Appendix) has
established its AA1000 Framework: Standard,
Guidelines and Professional Qualification, a
systematic approach used to frame corporate
responsibility policies, stakeholder dialogue,
social, ethical and environmental accounting
auditing and reporting, professional training,
and research and related standards work.
Social Accountability International (SAI, see
Appendix) has developed its SA8000 work-
place standard that covers key labor rights and
certifies compliance through independent,
accredited auditors. The Global Reporting
Initiative (GRI) promotes international har-
monization in the reporting of relevant and credible corporate environmental, social and
economic performance information to
enhance responsible decision-making. Many firms initiate charitable programs in developing countries that build on programs
they have started in the United States or other
advanced economies. Such programs may
have established reputations for recognized
achievements. Often these programs need
modification to fit within the developing
country context, but they have the advantage
of starting from a base of experience. As in
most business enterprises, managers often
learn by doing. Trial and experimentation
lead to program improvements. Educational
programs initiated by IBM provide a good
example. (See box.) Program management also raises the ques- tion of how a firms individual programs inter-
sect with other national, bilateral, and multi-
national development programs. Corporate 17 Some Lessons and Examples of Corporate Engagement The Organization for Economic Cooperation and Development (OECD) examined an inventory of 246 codes of corporate conduct, issued by individual companies, business asso-
ciations, and stakeholder partnerships. According to the OECD, all of the codes are volun-
tary expressions of commitments that surpass legal requirements. They address govern-
mental and public concern over the economic, social, and environmental impact of global
enterprises. The examination focused on whether, and how, nine key issue areas were addressed. These areas are: environmental stewardship, labor standards, science and technology,
competition, information disclosure, taxation, bribery and corruption, and consumer pro-
tection. The results indicate most major firms issue codes of business conduct that emphasize a commitment to the three major components of sustainable development (economic,
social, and environmental stewardship). Despite some uniformity of coverage, the codes
vary in many ways. Most notable are differences in commitment and implementation. For example, virtually all individual firms codes address the problems of bribery and corruption as well as environmental standards. Many also address labor relations. Some
codes treat these issues broadly while others include more detailed topics, such as union
association privileges. Documents addressing corruption are much more likely to discuss
implementation procedures and disciplinary action than those dealing with environmental
oversights. Within specific issue areas, guidelines show significant distinctions between
actions expected of company employees and suppliers and business partners. In some, the
language promotes internal assessment of company performance while in others it focuses
more on punitive action if codes are not upheld. SOURCE: OECD, Corporate Responsibility: Private Initiatives and Public Goods (Paris: OECD, 2001). OECD EVALUATION OF CODES OF CORPORATE RESPONSIBILITY policies that help establish higher workplace
norms are probably less subject to coordina-
tion problems than defined social programs.
As noted elsewhere such programs are highly
diverse and company specific. To achieve the
highest effectiveness, company sponsors may
need to work closely with local development
authorities or engage in coalition efforts such
as the Merck and Pfizer HIV/AIDS programs
described above. HOW TO EVALUATE? Corporate social programs are as vulnera- ble to waste and abuse as national and inter-
national development programs. Funds can
be misdirected or fail to achieve optimal
results. Decision makers need some means of
evaluating program effectiveness and making
decisions about the programs future course.
In addition, NGOs and other independent 18 REDUCING GLOBAL POVERTY In 2000, the value of IBMs philanthropic donations exceeded $120 million and consisted of cash donations, community service, and computer equipment. IBMs major focus, however,
remains on education programs. Of the $126.1 million that IBM contributed through its
global contributions program and community relations activities, 70% was devoted to educa-
tion. Two of IBMs most prominent efforts in this area are its Reinventing Education grant
program and its KidSmart Early Learning Program. Reinventing Education The $45 million Reinventing Education program is the centerpiece of IBMs commitment to improved education. Through the grant program, IBM works with school partners around
the globe to develop and implement innovative technology solutions to address educations
significant problems. Beginning in 1994, IBM established sites to support fundamental school
restructuring in nine states around the United States, and in 1997, issued 12 additional
grants, replicating the most successful elements of the original sites. Building on the success
of the program within the United States, IBM has launched sites internationally in developing
countries such as Brazil, Vietnam, and Singapore. At each site, IBM contributes the funds,
researchers, and technology necessary to modernize school systems. In Singapore, IBM
collaborated with the Ministry of Education in a public-private partnership combining
increased technology in schools with advanced teacher training and professional develop-
ment. Evaluations from the Center for Children and Technology and from the Harvard
Business School give Reinventing Education credit for a noticeable positive impact in school
participants. KidSmart Early Learning Program The KidSmart Learning Program is an effort by IBM to provide preschool-aged children with access to, and familiarity with, computers. In the program, IBM has worked with the
United Way of America to bring over six thousand Young Explorer workstationspersonal
computers designed specifically for preschool childrento nonprofit daycare centers and
pre-schools in over 1000 locations throughout the United States. Since the programs incep-
tion in 1998, over 1 million benefited from exposure to computers; the vast majority of these
children come from low-income families who would otherwise be unable to gain access to
new technologies and the Internet. Again, IBM is building on its success by bringing
KidSmart to developing countries such as Peru, Thailand, and South Africa. SOURCE: IBM, Community Relations, available at <http://www.ibm.com/ibm/ibmgives> Accessed July 30 ,2002. IBM: ITS NOT JUST GOOD DEEDS, ITS GOOD BUSINESS organizations seek the means to verify that
businesses are living up to commitments they
make in signing on to a code. Various solu-
tions have emerged in response to the need
for evaluations. Private accounting and audit-
ing firms such as KPMG and Pricewater-
houseCoopers carry out verification and evalu-
ation services. In addition, NGOs and special-
ized private firms monitor compliance with
codes, as does the ISO with respect to its stan-
dards. 19 An increasingly central element in evalua- tion is published self-evaluation. The annual
publication of triple bottom line and GRI
reports, or other detailed reports that credibly
evaluate corporate performance in developing
countries against set standards and published
business codes and sets of principles, are set-
ting a new benchmark. The best of these
reports involve corporations undertaking
internal reviews, discussing their performance
in detail with NGOs and other stakeholder
groups, and involving audit firms in aspects of
the review. The annual Shell report, People,
Planet and Profits, sets a high standard of best
practice. 20 By staking its reputation on this kind of public monitoring Shell has found it
had to develop effective incentives for its man-
agers, starting at the top (every country chair-
man in the Shell Group has to provide a com-
prehensive annual report on performance
against the Shell business principles) and
bonus payments take into account perfor-
mance in this social area. Thus, public
accountability forces firms to seek excellent
performance, which demands establishing
meaningful management practices for the
growing range of social policies and programs
that global enterprises need to pursue as they
build their global operations and demonstrate
global corporate engagement. Evaluation is also important from a social perspective. How can society ensure that its
priorities, beyond those of the firm, are being
met? How can private programs be integrated
with national and multinational development
programs? How can society guard against
unintended consequences that might result
from corporate social programs? For example, corporate programs may inadvertently empow-
er one social group at the expense of another,
thereby creating or exacerbating social fric-
tions. Alternatively, a program may create new
problems, even as it tries to solve an old one,
and state intervention to correct the problem
may make things even worse. The experience
of Nestl

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