Lorenzo Boffi
The New Corporate Philanthropy and the New Reality of Aid
Thesis Statement
Analysis of the new corporate philanthropy framework and its added value in delivering aid. In particular, given the increasing importance that the CSR economic paradigm gives in enhancing a new role to business practices into a development friendly structure, this paper's main proposition is to show how and why the private sector has taken much more responsibility for development in the last ten years. Moreover, the paper will develop the argument that the private sector and its business-like approach to international development, that is apolitical, less bureaucratic and problem oriented, can significantly contribute in implementing some of the changes necessary in aid architecture. The wide role of CSR coupled with the power and technological capacity of corporations, coupled with the failure of most development efforts to date, provides additional impetus for corporations, and the private sector itself, to be more involved in development than ever before (Hopkins, Michael. CSR: The Development Challenge, 2006, p. 363).
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Introduction
State governments and their international arms, the international agencies grouped under the United Nations, are somehow failing in their main objective to cure the world from under-development and poverty. This is particularly true if we go and analyse how much of the money reserved for development purposes really reaches the final recipient.
In fact, of the $100+ billion of official development assistance (ODA) given by rich countries to developing countries in 2005 only $38 billion was oriented towards long-term development projects and programs. Of this $38 billion, maybe just more than half reached the intended beneficiaries (Kharas, Homi. The new reality of aid, 2007, p. 1 ).
The low levels of net development aid from official donors suggest that it has proven to be easier to mobilize funds for things like technical assistance, debt relief, food aid and emergencies, than for real development projects.
A huge gap has opened between poor countries' pressing needs and official aid. This gap has created financial and institutional space for new aid givers, especially from the private sector, increasingly more active in development cooperation.
Corporations are involved in development and should be seen as agents of development. Large corporations, with their power and economic strength, have taken a dominant position in society and need now to recognise their obligations.
In fact, the number of private corporations and foundations engaging in development is exploding and the value of their donations could help reducing the enormous gap between rich countries and underdeveloped ones.
In the following pages I will analyse which are the very first reasons that explain this augmenting presence of the private sector in delivering aid. By doing so, it will be clear that the link between organisational activities of the private sector (CSR approach) and the Millennium Development Goals can help bring important changes to the developing world by generating new resources and bringing innovative approaches to the international development field.
From CSR to CSD (Corporate Social Development)
The private sector only gets a brief mention in the Millennium Development Goals. In particular the private sector is briefly recognised as a significant source in development assistance (Goal 8: Develop a global partnership for development). Yet it is business – entrepreneurs, employers, investors and workers – who are best positioned to help developing countries achieve the Goals. With the growing international demand for transparency and accountability in social, economic, and environmental practices, important opportunities exist for the private sector to develop policies and practices toward achieving the MDGs.
Many of the MDGs fit into the business sphere of influence, through the workplace, marketplace, supply chain and public policy dialogue. It is a good and smart business decision to align with the MDGs and human rights through CSR policy.
This is true especially since the private sector has started to be involved in public issues, specifically through the framework of corporate social responsibility, which ensures a responsible involvement of the private sector in developmental activities.
Increasingly, business seeks to maintain corporate identity while at the same time upholding social and environmental standards and confronting the concerns of social exclusion and community development. Today, corporate behaviour must not only ensure returns to shareholders, wages to employees, and products and services to customers, it must also respond to societal and environmental concerns. In fact, corporations have a commitment to put something back into the community.
This sort of social investment is a chance for a corporation to take a leadership role in development issues, making the commitment to run their business in an ethically social and environmental manner.
An increasing number of large national and trans-national corporations are indeed engaging with the CSR "movement", not simply in a reactive sense - although many do respond to pressures of various sorts like marketing related issues - but more proactively, given a range of benefits that derive from CSR.
While serious concerns have emerged about the limited scope and effective implementation of CSR initiatives, it is also apparent that many CSR companies, business associations and business-interest NGOs are involved in an active learning process and are evolving gradually towards more rigorous standards and practices, and in the process, the CSR agenda is being broadened.
The cynic might argue that a cover of 'social responsibility' may allow corporations to interpret development policy in the way that suits them best and such fears may be natural in view of past exploitation. However, we tend towards the pragmatic view that there can be benefits for all if corporations are not treated like the enemy.
CSR provides a platform for corporations to be involved in economic development in ways that can be much more powerful than how it has been thought before. Once responsibility is accepted, the anticipation is that companies will move to Corporate Social Development.
Such a concept, is more action oriented than CSR per se, and includes social actions for all stakeholders. Once that CSR is interiorized inside the corporation, the next step is to move to a bigger framework of responsibility (Hopkins, Michael. CSR: The Development Challenge, 2006, p. 357). A framework in which development activities represent the core for a responsible business.
A private company interested in its involvement in development could approach the issue by engaging fully with its stakeholders and explore options for furthering development efforts while ensuring that the actions it takes are fully in line with preserving shareholder value (Hopkins, Michael. CSR: The Development Challenge, 2006, p. 353 ). This approach, is in the long term interest of the private firm, and, of course, is crucial for development to move faster than it has to date. For these reasons it becomes crucial to ensure a global awareness in this sense.
There are many benefits from Corporate Social Development that will improve and help the survival of the firm on one side and to resolve the problem of under-development and poverty on the other. Only if this concept becomes the top agenda in the international environment, through roundtables and global meetings, the contribute of the private sector in delivering aid may represent a new and strategic path for development.
Internal reasons that bring corporations more involved in development can be summarized as the following:
· Enhancing values like reputation which is built around intangibles such as trust, reliability, quality, consistency, credibility, relationships and transparency (Hopkins, Michael. CSR: The Development Challenge, 2006, p. 357 ).
· CSR positively helps in the building of relationships with host governments, communities and other stakeholders and can be of vital importance.
· CSR gives a company a competitive advantage over companies with poorer images.
Referring now to the actions that the private sector can embrace outside the firm in order to ensure an increase in development, we must mention:
· Work with the Government in host country to see how the Governments policy can be enhanced.
· Building strong and long lasting partnerships with local UN and NGO organizations to increase efficiency of development initiatives.
· Increase the supply of in-house training skills to a wider public in order to improve competencies of local communities where the corporation is setting its own business.
· Improve the community relations, where well designed projects can create sustainable development.
· Invest in order to increase and support wider development objectives that enhance the host country.
· Supervise and ensure that philanthropic initiatives are sustainable in the development sense.
· Assure an anti-corruption culture in all the activities that the corporation faces in the developing country. This would benefit increased efficiency as poorly managed projects would be eliminated and good ones properly monitored.
· Try to invest more in Least Developed Countries in order to increase employment and incomes and enhancing the countries external trade situation.
The Private Sector and the Changing Aid Architecture
Philanthropic organizations are estimated to bring a strong injection of aid to international development causes. And while it is unclear how much of this total relates to Africa, it is clear that
Philanthropic foundations have made important contributions to development, particularly in agriculture, family planning and infectious diseases control. The most effective interventions have been long-term investments that were based on vision and sound scientific understanding, and were well integrated with local capacities. Foundations are increasingly involved in public-private partnerships whose activities range from crop and disease research to improving infrastructure especially water supply. They have also evolved innovative approaches to building democratic life in developing countries. Better information exchange with official aid agencies and appropriate fiscal encouragement of their activity can help maximise foundations' future development contributions.
Let's now see who are the new actors arising in the new aid framework:
• Megafoundations. Among the biggest changes in the private funding scene in
• Private foundations. The smaller cousins of megafoundations are far more numerous. These private foundations tend to be more specialized than bilateral aid agencies, but less specialized than development NGOs. Many of the smaller foundations target certain areas or sectors and channel their international giving through intermediaries.
• Corporate philanthropists. Multinational corporations are becoming more involved in poverty and development issues in
It is clear now that the private sector has grown from a small player in development assistance to a major, dynamic force. More importantly, there is reason to believe that private aid can help in a more effective way in delivering development, if and only if international organizations recognize their added value and innovative contribution into development purposes.
In particular, the final objective of this ongoing work is to show which are the specific characteristics of private giving and how they not only differ from the official donors, but can also be, to a certain extent, more effective.
The private sectors work in development issues is more likely to be apolitical and problem oriented (Marten, Robert, Witte, Jan Martin. Transforming Development? The role of philanthropic foundations in international development cooperation, 2008 p. 15).
Empirical data show that the private actors (like foundations and private firms) select programs and projects on the basis of need, and do not consider other priorities like foreign policy. This approach allows them to get things done and to focus on problem solving, making the project move toward success. As corporations do in their daily business management decisions, they identify an issue, analyze it, and then try to find adequate solutions aiming to reach the biggest impact, without worrying about politics, like official donors do.
Another main characteristic of the private sector that highlights another difference with the role played by official donors is given by the fact that the private actors are not concerned with public budgeting rules, political cycles or election deadlines. This sense of liberty and freedom allows the private sector to behave towards innovative and risk taking policies that official donors might find hard or impossible to reach. Positive features of a private donor can be referred to their quick and more flexible decision process.
Furthermore, this kind of independence also permits private donors to build their policy on a long time perspective, taking into account the chances to increase a long term sustainability and lasting impact.
Another interesting point in private behaviour is to minimize the costs of bureaucracy and of the personal staff in order to maximize the amount of money for development purposes (Marten, Robert, Witte, Jan Martin. Transforming Development? The role of philanthropic foundations in international development cooperation, 2008, p. 18).
This kind of approach based on minimizing costs brings private corporations to use local capacities. In fact, instead of being micro-managed from some far headquarter, the idea is for business minded private actors to work with local entities that have a better idea of what to do and how to do it. This represents a perfect balance between two needs that the private sector has to take into consideration: on one side a firm must always take into account its own budget constraint, which means, the economic capacity that the firm has to consider in order to limit and reduce wastes. In order to maintain low costs and increase efficiency, it is in the will of the firm to invest and support local skilled employees. The creation of added value in these terms represents an important step in order to increase the market position of a firm in the long run.
If on one side the decision to invest in local communities is driven by economic benefits, on the other hand enhancing development means to actively make local communities benefit in terms of skills and employment opportunities. In fact, this kind of investment represents a fundamental step in order to ensure sustainable economic and social development. By recognizing the needs and creating a structural training system, local communities can actively participate to the future social and economic growth of their country.
In particular, the company has to be able in tying development activities to core business activities, and formulating solid business reasons to address every specific project towards development.
Moreover, a business-like approach places value on measuring results and organizational learning both from successes and failures. The private sector firms are naturally interested in knowing how effective their investment has been, as well as to prevent the repetition of mistakes which lead to bad investments.
Furthermore, focusing on results could improve accountability and transparency, two values that have been quite dismissed in the international agencies who focus on development.
Finally, a business-like approach to development has other two important features:
· The allocation of private aid is less likely to be based on geo-strategic considerations, and more according to the actual needs of recipients.
· Because it deals directly with NGOs and civil society, private aid can avoid the corruption associated with developing country governments.
Conclusions
After listing all the possible positive characteristics of private engagement in development issues, we must also outline a word of caution. Private aid can make a difference, but it is by no means a panacea for all the problems of the under-developed countries. The history of global charity has also had its share of scandals involving misappropriations of funds and corruption. And the universe of foundations, charities, educational organizations, and private and voluntary organizations may be too crowded and too fragmented to make a real difference on a large scale.
But the new reality of aid is one where private aid will become a larger and larger share of total development assistance. For this reason it becomes crucial for the international agencies focusing on development to realize that there must be a complete and shared vision on how to monitor and coordinate all these aid actors.
In order to do this, the traditional international donors and national governments must gather in a shared and clear statement and formally recognize the important role and strong contribution that private engagement brings in enhancing development.
Only in this way, both the international agencies and the private sector can exchange different approaches and work together for future improvements.
If this is not going to happen, the spread of private aid from individuals and from large and small foundations will make "harmonization" harder to achieve.
Annotated Bibliography
Primary Sources:
· "CSR: The Development Challenge", Michael Hopkins, notizie di POLITEIA, XXII, 82, 2006 (policy paper)
Particularly interesting for analysing the effects of the CSR paradigm in terms of development and increasing aid effectiveness
· "Transforming Development? The role of philanthropic foundations in international development cooperation", Robert Marten, Jan Martin Witte, GPPI Research Paper Series No. 10, 2008
Shows the positive and possible negative features of private actors in the development aid architecture
Secondary Sources:
· "The new reality of aid", Homi Kharas, presented at brookings Blum Roundtable
Focuses on the increasing importance of the private sector, seen as a new component who's basic effort is to reduce the gap between the needs of the developing countries and the mistakes done by the government and international institutions in delivering aid
· "Engaging Business in Development", Andrea Binder, Markus Palenberg, Jan Martin Witte, GPPI Research Paper Series No. 8, 2007
Shows the results of an international benchmarking study on a new tendency among donors: promoting public private partnerships, global development alliances or other types of initiatives that are designed to leverage the resources and expertise of the private sector to global development issues
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