Rules of Global CSR Initiatives

MONTHLY FOCUS NO 11-2013 Rules of Global CSR Initiatives By SHIN Hye-Jeong

I. Importance of Global CSR As economic globalization accelerates, more attention is being paid to corporate social responsibility (CSR) activities in foreign markets. Governments around the world are moving to lay down the institutional and legal foundations as the recognition of the importance of such activities rises. For instance, the parliaments in India and Indonesia have passed CSR bills, which will have direct impact on foreign businesses operating in the two countries. Table 1. CSR Legislations around the World Country Key Points The upper chamber of the Indian Parliament passed the New Companies Bill in August 8, 2013. The bill includes several CSR requirements for companies; India - To spend an annual 2% of their three-year average net profits on CSR activities. - To stipulate the establishment of a CSR committee within the board. Companies subject to the law are those meeting one or more of the conditions below;. - Revenues of 10 billion rupees (US$ 167 million) or more. - Net assets of 5 billion rupees (US$ 83.3 million) or more. - Net profits of 50 million rupees (US$ 823,000) or more. Companies that do not comply are given the opportunity to explain the reasons. Indonesia Indonesia was the first in the world to enact a law requiring companies to implement CSR programs in 2007. Past experiences, including resource exploitation and environmental degradation by foreigners during the colonial era acted as the basis. The German government formulated the CSR Action Plan, a comprehensive set of national level CSR schemes. The specific goals are specified below; Germany - To help companies and public administrative organizations pursue CSR activities on firm footing. - To involve more small- and medium-sized enterprises. - To reap tangible results and raise the credibility of CSR activities. With the action plan, the government expects foreign firms operating in the country to voluntarily and aggressively implement CSR initiatives. Source: India s CSR Policies and Implications, Park Ji-Su et al., KOTRA; To Turn Indonesia into a Land of Opportunity, The Korea JoongAng Daily, July 11, 2011; and FAIRTRADE DEUTSCHLAND website <www.fairtrade-deutschland.de>. CSR programs in overseas markets are effective tools for companies to build up social capital such as forming friendly trust-based relations with the countries and communities they operate in. Apple received heightened attention by donating 50 million yuan for earthquake 1

victims in Sichuan, China in 2013, 125 times the amount (400,000 yuan) it donated when a 7.9-magnitude earthquake hit the same province in 2008. 1 A growing number of Korean companies are also recognizing the importance of global CSR activities. The share of companies with global CSR programs rose from 42.1% in 2008 to 66.7% in 2010. Among those without such programs as of 2010, 32.9% expressed their willingness to establish them. 2 Firms operating in foreign markets need to be alert to and ready for the possibility of having to deal with social responsibility-related issues that may not have been a problem in their home countries. This paper will review three global CSR programs in the healthcare and environmental sectors, the main domains of CSR, and then find the lessons learned and the implications. 3 II. Global CSR Initiative Case Studies 1. Malaria Initiative by ExxonMobil Malaria has long been a source of concern for Africa. Not only has it lowered the continent s economic growth by an annual 1.3 percentage points, the disease also takes 600,000 lives a year. 4 In the midst of the Chad-Cameroon Oil Pipeline project 5 in 2000, ExxonMobil realized that malaria was harmful not only to the local communities but also to its operations. There were 1,750 malaria cases per 1,000 employees annually, causing a loss of US$4 million through lowered labor productivity, increased absenteeism and delayed work process. The loss grows even bigger if increased medical support and damaged corporate reputation are considered. Worse still, West Africa, where Chad and Cameron are located, was a strategic location with 25% of ExxonMobil s total crude oil production in the early 2000s deriving from the area. 6 Against this backdrop, ExxonMobil launched the Malaria Initiative in a bid to combat the disease for its local employees, their families and the communities. However, the oil company realized that it could not combat the disease by itself and called for greater attention from the international community through global partnerships. Meanwhile, the UN Summit on Millennium Development Goals and the African Summit on Malaria, where African leaders signed the historic Abuja Declaration in 2000, urged greater commitment by private companies in the fight against malaria. This prompted ExxonMobil to take action. 7 Now, the firm aggressively supports international non-government 1 Global Firms Pushing Hard for the Chinese Hearts, Rather than Quanxi, Chosun Ilbo, July 17, 2013. 2 According to a 2010 survey by the Federation of Koran Industries (FKI), 35.9% of companies pointed to localization as their reason behind CSR activities in foreign markets, and 21.5% fulfilling social responsibilities for local communities they operate, up from 10.2% in 2009, Corporate Community Relations White Book 2010, FKI, 2012 3 Multinationals with at least five years on international CSR initiatives were selected for analysis. 4 ExxonMobil Announces More Than $5 Million in Grants for Malaria, Business Wire, January 28, 2005.1.28. 5 The Chad-Cameroon Oil Pipeline project is the largest public-private development project conducted by a consortium of ExxonMobil (40%), Petronas (35%) and Chevron (25%). They expect to produce 1 billion barrel of oil for 25 years. Martin, J. P. (n.d.), Chad Cameroon Oil Pipeline Project: a Study Tool and Case Study, Columbia University, www.columbia.edu/itc/sipa/martin/chad-cam/overview.html. 6 NetsforLife Africa, ExxonMobil, 2011, www.netsforlifeafrica.org. 7 The Abuja Declaration prioritized strengthening partnerships between the private sector and NGOs to cut malaria-related deaths in halve by 2010, Roll Back Malaria, 2011, ExxonMobil: eliminating malaria in the workplace, www.rollbackmalaria.org/progressimpactseries/docs/report6/exxon-en.pdf. 2

organizations (NGOs) in the prevention and treatment of malaria as well as vaccine researches and serves as a board committee member of those organizations. In its efforts, ExxonMobil distributes mosquito nets and promotes diverse campaigns through its gas stations and employees participate in diverse programs in commemoration of the World Health Organization s World Malaria Day on April 25. The company also promotes the use of mosquito nets in malaria-prone regions in Africa and Asia while collecting donations in North America and Europe. ExxonMobil s initiative in and consistent commitment to the control of malaria has contributed to reducing deaths from the disease by more than 25% worldwide. Furthermore, thanks to the company s US$110 million-plus investment into the prevention and treatment of malaria since 2000, the international community has come to recognize ExxonMobil as one of the biggest contributors, with the exception of pharmaceutical firms, in the fight against malaria. ExxonMobil Proposes Performance Management Model for CSR ExxonMobil consistently monitors and evaluates its CSR performance as it does for its business operations. - The company established key performance indicators for the use of mosquito nets, incidences and treatment of malaria, and death from it. As a result of the firm s efforts to control the disease for 180,000 locals in Benguela, Angola, the number of malaria-related deaths fell 80% from 3,902 in 2009 to 792 in 2011. - ExxonMobil encourages global partners to commit to the control of malaria by showing them the results of their investments through Malaria Scorecard which it developed together with the World Bank. Source: 2012 Corporate Citizenship Report, ExxonMobil. 2. Developing Health Globally by GE GE s CSR initiative, Developing Health Globally (DHG), created an opportunity for GE to enter the African markets. Jeff Immelt, who swore in as GE Chairman and CEO in 2001, was reported on the initiative proposed by the African American Affinity Network in 2004 as he contemplated on how to enter Africa. He decided to use the GE Affinity Network as the facilitator of the DHG in order to expand its business into the continent. As an attempt to build up business experiences in new markets, the DHG is focused on improving the healthcare environments of countries lacking in proper medical resources. So far, GE has invested more than US$60 million in 204 hospitals and public healthcare centers in 14 countries in Africa, Latin America and Southeast Asia. When selecting the beneficiaries, the community needs, potential sustainability, stability and transparency of the host nation are considered. The company pursues close relations with relevant government agencies in the host countries as healthcare is greatly affected by government policies. And localization strategies are used to ensure the effectiveness and sustainability of the DHG. GE manufactures medical equipment exclusively designed for the initiative that are easy to assemble and have low operating costs. For this, the firm works with local medical staff and institutions, NGOs and universities to figure out medical solutions appropriate for the conditions in the field. Moreover, local GE Affinity Network-affiliated employees with expertise hold sessions for hospital staff and offer maintenance services. These pro bono 3

activities provide an opportunity for employees to deepen their understanding of the company, thereby allowing them to better accommodate the firm s globalization strategies. 8 The DHG initiative proved fruitful and GE s profits increased. The company provided quality healthcare services to 12 million people in 14 African countries through the initiative and its revenue on the continent soared accordingly from a mere US$500 million to a staggering US$3.5 billion. 9 Understanding of Local Business Environments: Basis for Entry into New Markets Based on the experiences of the DHG, GE successfully commercialized Embrace, cost-friendly warmer for new-born babies and SunSpring, solar-powered water purifier. - Healthymagination, GE s core business strategy launched in 2009, was based on the DHG. DHG was an opportunity to understand Africa s healthcare environments and helped us develop successful products, said Deo Onyango, Regional Executive & Commercial Director for GE East Africa. Source: How GE is Helping the World Cope With 7 Billion People, GE Report, October 2012. 3. Coca-Cola s Community Water Partnership Coca-Cola became acutely aware of the importance of water in sustaining business as well as to meeting the needs of the communities. In 2004, the locals in India blamed Coca Cola for depleting the water supply and causing water-borne diseases, and filed a lawsuit, bringing the company to the brink of having to close its factory. Although Coca-Cola finally won the lawsuit in 2005 on a lack of scientific evidence, restoring its damaged reputation prove much more difficult. It created the Community Water Partnership (CWP) based on a close examination into water-related risks facing its operations and the local communities. Given that water shortages pose different issues to different regions, the company, under the comprehensive agenda of addressing water issues, established four main areas of support; watershed protection and conservation, community drinking water and sanitation access, water for productive community use, and an education and awareness campaign. To meet the diverse needs of the different areas, Coca-Cola works with its bottling partners to implement about 400 customized projects in 94 countries. Moreover, it mobilizes the efforts of stakeholders who share the commitment to maximize the benefits for communities. The beverage company maintains cooperative relations with a total 532 external organizations, including local as well as international NGOs such as the World Wild Fund and the Nature Conservancy. Coca-Cola and its partners commitment to the CWP in financial terms totaled US$250 million as of 2012, which provided 1.82 million people across the world access to drinking water. 8 Pro bono activities refer to volunteer work by experts using their professional knowledge and skills. GE employees volunteer to exercise their expertise into the DHG. 9 GE executives expect revenue to grow to US$20 million within the next 10 years. Renewing GE: The Africa Project (Case Study), Thomas, D. & Creary, S., 2011, Harvard Business School. 4

Coca-Cola s ultimate goal is to return the equivalent amount to what it uses in its beverages and for production in water by 2020. For this, the company quantifies the amount of replenished water through partnerships with environmental organizations. In this way, the firm not only secures water needed for communities but protects the environment and improves the quality of life for the local people. And as of 2012, Coca Cola has achieved 52% in its endeavor. Figure 1. Amount of Water Returned to Communities through CWP Source: 2013 Water Stewardship & Replenish Report, Coca-cola, 2013, www.cocacolacompany.com/collaborating-to-replenish-the-water-we-use. III. Implications Four factors of effective global CSR programs were derived from the three case studies of global companies. The four factors are aligning the strategic issue with the business; building partnerships; committing to sustainable investment; and documenting the outcome and impact. These factors must be considered when companies devise strategies for global CSR programs and implement projects appropriate for their own business characteristics.. The first two factors are the core of global CSR initiatives. After recognizing the local issues that could create opportunities to enter new markets or pose risks that are unimaginable at home, the issues and the business must then be aligned. For this, companies need to first understand the local communities social, cultural and institutional environments. It is worth remembering that identifying community needs may be relatively easy at home, but difficult in foreign countries with different socio-cultural environments. Through partnerships with field experts, companies can secure credibility to have a greater impact on local societies. Korean firms reportedly have difficulties in finding the right experts or partner organizations in the relevant fields to carry out their programs. They need to recognize that the capabilities 5

of NGOs operating in developing countries go beyond their expectations. The number of UNauthorized NGOs has skyrocketed from a mere 40 in 1945 to 3,536 in 2011 with their influence on governments and the international community rising steadily. Moreover, their multinational networks could be helpful in expanding CSR activities worldwide. Committing to sustainable investment and documenting the outcome and impact are also important. Sustainable investment can be made possible by utilizing business capabilities such as corporate resources and employees expertise based on the management s strong leadership. Aligning investments in CSR programs with business operations will raise the sustainability of investments even higher. The paradigm of CSR has changed from 15 years ago, shifting from who gives the most to who is more effective notes Celia Moore, IBM's Corporate Citizenship and Corporate Affairs Executive. When it comes to documenting the outcome and impact of CSR programs, companies now need to establish comprehensive management systems to monitor and evaluate performance based on results. This approach will then help companies secure credibility from local communities and build long-term friendly relations. Table 2. Four Factors of Global CSR program Factors ExxonMobil GE Coca-Cola Business goal: Raising Business goal: Entering employee productivity new markets Local needs: Promoting Local needs: Promoting the health of local the health of women people and achieving and children economic development Common issue: of host countries Improving healthcare Common issue: environments Combating Malaria Align the strategic issue with business Build partnerships Commit to sustainable investment Document the outcome and impact Calling for global attention through global partnerships Utilizing business capabilities and promoting employee participation Providing supports for more than 10 years under strong leadership 44% reduction in malaria incidences and 80% reduction in malariarelated deaths in Angola Securing project stability and pursuing localization through local partnerships Developing and supplying products customized to local conditions and relating maintenance into probono activities Relating with business strategies Drop to 3% from 42% in the rate of patients transferred to bigger hospitals in Rwanda Business goal: Securing product resources Local needs: Combating water-borne diseases Common issue: Addressing water shortages Improving the level of expertise and effectiveness through strategic partnerships with about 500 relevant organizations Setting a comprehensive agenda to make specific support programs more flexible Setting and managing targets aligned with business operations 52% of water used in beverages was replenished 6