A long-running debate about the purpose of business has exposed some of the differences between Western and Asian approaches to corporations. While the Western model has long focused on creating shareholder value, companies and governments in South Asia, including Pakistan, have tended to agree – but also emphasise their contributions to development of societies, economies and nations.
Somewhere between these distinct approaches of what the late economist Milton Friedman described as the business of business is business and the developmental mode of capitalism lies a unique opportunity for South Asian and Pakistani companies.
This approach will guide the most successful Asian companies in embracing corporate social responsibility (CSR).
Assessing True Economic Cost and Benefit
It is that the simple business of doing business is ultimately good for society because of the economic impact its products and generated revenue have on individuals and groups as well as creating wealth which rolls out in waves across the community. Taken to its logical conclusion, this approach to CSR is highly attractive to companies for one simple reason: it is good for business.
However, in order to embrace true CSR, there are important steps companies need to take that require them to go far beyond the assertion that simply by engaging in business they are helping the community.
Companies have been engaging in business for hundreds of years while the past 60 years have seen a massive increase in competitiveness and emergence of a global economy. As well as creating massive amounts of personal wealth, and generating economic prosperity, companies have also wreaked an untold amount of damage on communities, the environment, and political systems. India and Pakistan have first-hand experience of the impact of rapid industrialisation with little thought for the social and environmental costs. The rapid pace of industrialisation exacerbated by a lack of proper infrastructural or regulatory systems in these countries has led to adverse environmental impacts and stretched socio-economic disparities.
Management should be acutely aware of the impact both positive and negative its activities will have. Companies must be prepared to abandon activities when the damage, hence cost would be too great, modify when the risks outweigh the benefits for the community and consult with external stakeholders when undertaking any project with the potential to impact other parties.
Asia Mainstreams CSR
The notion of Corporate Social Responsibility has entered the mainstream in industrialised countries. According to a KPMG survey, in 2005, 52% of the world’s 250 biggest companies issued separate CSR reports. As CSR embeds itself in the operations of leading companies around the world, an increasing number of companies in Asia are embracing the need to ensure activities are ethically sound and beyond. They are also seeking to engineer projects which provide win-win situations for companies and stakeholders. Global social and environmental concerns such as climate change, poverty alleviation and labour rights are increasingly driving corporate strategies of firms operating in Asia.
The reason is simple: forces of globalisation, political liberalisation, rise of digital and aggressive media as well as the emergence of NGOs in Asia are forcing companies to become socially responsible. Those that fail to do so will be punished by communities, purchasers, media, governments and, ultimately, markets.
At a fundamental level, CSR is all about stakeholder relations; managing an effective communication and outreach programme; and providing feedback that truly impacts operations in the most positive way. The areas which comprise the most commonly discussed components environment, labour, social impact should all be addressed by genuine and professionally-operated communications programs.
The drive across Asia towards freer markets and more responsive forms of government has been accompanied by an increasingly aggressive media and the proliferation of non-governmental organisations (NGOs) which are placing corporations under the spotlight. Such scrutiny is not welcomed by most companies operating in Asia. Entrepreneurs and professional managers running corporations in the world’s fastest-growing economic region have traditionally preferred to focus on the business of running a business.
Romancing the Stakeholders
This new trend will require businesses in Asia to reorient their adversarial views of stakeholders such as media and NGOs to an approach based on partnership and relationship-building. Those that succeed in making the shift can look forward to a newfound influence and ability to set the agenda with important partners. Those that continue with the patterns of the past risk being locked into a pattern of conflict and waning power to affect the wider issues confronting their businesses. This stakeholder-oriented approach to CSR provides dialogue and the basis for a genuine partnership.
Media have become more aggressive in reporting the performance (and problems) of companies. At the same time, NGOs are operating in freer environments, particularly when monitoring business. Even in those places where political devolution does not fit the Western-touted model of democracy, there is a willingness to allow business to be subject to greater levels of scrutiny, especially when management is found to have harmed consumers, engaged in corrupt practices or excessively harmed the environment. This trend has prompted some analysts to speculate that authorities are prepared to tolerate such scrutiny not only as part of the rise of market forces but to relieve various pent-up frustrations within the system through the letting off of steam through media and NGOs.
Multinational corporations have played a key role in localising this global trend on the continent. Adopting practices from the West where a free media, a multitude of NGOs including consumer advocacy groups, trade unions and crusading politicians have forced companies to hone their skills in dealing with interests they represent, MNCs have been fostering corporate Asia’s engagement with stakeholders. So proficient have some large Western multinationals become at managing these outsiders in their home markets that they now base entire corporate affairs strategies around stakeholder groups. Similar strategies, adapted to local conditions, are being rolled out in Asia.
Key to effective CSR and management of stakeholder relations is identifying the various external (and internal) groups that have the power to affect not only a company’s business but also its operating environment and regulatory framework. Once those parties have been identified, they need to be prioritised and their interrelationships explored to better understand how, those who appear to be disparate groups, actually interact and influence each other behind the scenes in society.
CSR is essentially a longer acronym for business acumen. Any business which ignores the community and groups which have the most power to boost or wreck their prospects is ignoring one of its key opportunities and responsibilities. And the stakes have just become much higher in Asia.
