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Corporate Social Responsibility
On this page
* * * Novartis Foundation Contends Improvement in Access to Medicine Should Be Based on Fair Division of RolesPresident and CEO of Novartis Foundation has written an essay outlining a realistic corporate approach to the global public health challengePharmaceutical companies have had a long history of tense relationships with many civil society organizations due in large part to disagreements over what defines the industry’s responsibilities. As public health continues to be a major challenge in all countries, many people expect pharmaceutical companies to be taking an active role. Access to medicine is still highly disparate across regions, socio-economic classes and genders. In the not so recent past, many organizations, such as Oxfam, have criticized the pharmaceutical industry for not doing more to help the poorest people who are often the most in need. To address the controversy over this issue, Dr. Klaus M. Leisinger, President and CEO of the Novartis Foundation for Sustainable Development, wrote a comprehensive essay answering some the criticisms leveled in the past. Dr. Leisinger’s main argument is for the fair distribution of responsibilities across all entities involved and increased cooperation among relevant parties in order to find solutions. He believes some of the demands placed on companies are “unrealistic.” Many of the good deeds done by companies go overlooked, and it has been difficult to overcome a general negative perception. In response to this, the essay breaks down the roles of the many “duty bearers” and encourages each to live up to them. With regard to corporations, Dr. Leisinger states in no uncertain terms that their primary role is produce innovative medicines that will help sick people “in a profitable way.” He argues for the protection of intellectual property rights and vigorous pursuit of research and development, all of which he argues will increase this primary duty. He proposes a hierarchy of responsibilities for corporations. According to him, “successful pharmaceutical companies contribute to the respect, protection and fulfillment of the right to health, first and foremost, in the context of normal core competence business activities.” Based on this principle, there are activities that companies must do, ought to do, and can do.
The "Must" Dimension Conducting research and development, bringing innovative and effective products to the market, and by providing goods and services that meet customers’ needs at competitive prices – all in a legitimate way. Legitimacy is defined as compliance with all laws and regulations concerning healthy workplaces, environmental protections, and the safety and efficacy of products and services. The "Ought To" Dimension Responding to broader public expectations that go beyond the legal minimum. These activities could include applying to higher standards, such as fair labor conditions and wages, when local laws are insufficient; providing free or heavily subsidized facilities for diagnosis, treatment, and psych-social care of workers; or offering free training opportunities using company capabilities. Adjusting pricing on a case-by-case basis should be a choice and remain discretionary. The "Can" Dimension Dr. Leisinger describes this mainly in terms of corporate philanthropy. It is “purely voluntary, guided only by business’ desire to engage in social activities that are not mandated, not required by law, and not generally expected of business in the ethical sense.” These are the realistic expectations that society should have for businesses, according the essay. Benchmarking best practices, Dr. Leisinger argues, is a healthy way of boosting competition, but idealistic standards should not be mandated. Much of the responsibility for equal access to health care remains with the state, which Dr. Leisinger calls the “primary duty bearers.” He argues there are many factors that contribute to insufficient access to medicine, all of which cannot be solved by corporations alone. The state has the primary responsibility to its citizens for providing proper capacity for delivery of medication and sufficient health facilities. He cites a recent World Health Organization report that views the “failure of health systems” at the center of the resulting human crisis. Governments have a responsibility to devote a reasonable portion of their budget to healthcare, and if topped with appropriate development assistance, would be enough to provide adequate primary health care. Just as corporate fraud and misbehavior cannot be accepted in the private sector, poor governance and corruption cannot be accepted in the public sector. Posted 4/18/08
* * * Transatlantic Perceptions of Corporate Social ResponsibilityBusiness representatives from Europe and America discuss how they view the CSR landscapeA recent conference at the Business Civil Leadership Center, the global citizenship arm of the U.S. Chamber of Commerce, brought together numerous American corporate representatives and representatives from the American Chambers of Commerce across Europe. There is little doubt that the term corporate social responsibility has entered the business mainstream, but there are still different opinions on exactly what it means. Business leaders from Europe and America gathered together to express their own perceptions of how their companies view CSR initiatives and to share their experiences. Three general trends emerged from the discussions, mainly answering the questions – what motivates CSR projects? What activities constitute best practice? and Are Americans and Europeans moving toward consensus? All the speakers lamented how negative public perceptions of big business have become. In both Europe and North America, consumers are expecting more of companies than ever before, and with high-speed information networks, companies are more highly scrutinized as well. A representative from an American office at Coca-Cola described it as a “credibility crisis.” Most agreed that consumers are increasingly less tolerant of “spin.” Even if a company gets it wrong, consumers are looking for the truth – not verbose speeches that attempt to turn it around. In this context, from both sides of the Atlantic, it was agreed that CSR should not be done on the basis of gaining publicity. One representative from Proctor & Gamble even expressed a strategic tendency to stay out of the limelight for fear of having to weather a bigger media storm when something inevitably goes wrong. A representative from Daimler with a European background stressed the importance of strategically tying CSR initiatives to business goals. It was suggested that Europe has a stronger tradition of merging CSR and business practices as mutual goals, whereas the United States has had a more vibrant tradition of philanthropy, which has only more recently broadened. An American representative mentioned how many U.S. companies want to know the nuts and bolts of how a project will be carried out, whereas European companies are willing to be more “aspirational.” This is a point he encouraged both sides to be aware of when cooperating on future projects. Europe was also described as having had more success integrating environmental issues into their business practices. There is a trend in European businesses to use the term “sustainability” rather than CSR, which reflects more strongly the environmental component. European consumers are also more sensitive to organic labeling, a trend in the United States that has been slower to catch on, one European representative mentioned. This may also reflect the difference in the U.S. tendency to be more concerned with risk mitigation and Europe with overall business strategy. The U.S. government is also less involved in regulatory activities, which could also have an effect on the types of activities American companies chose versus European companies. On the whole, leaders on both sides agreed CSR should be grounded in business strategy, but there was more hesitation to admit that the U.S. and Europe are moving toward a universal approach. Given the regional and sector differences between the two continents, many said it was difficult to imagine a common framework. The regulatory environments in the U.S. and the UK are different, as well as consumer preferences. Despite the contrasts, however, there was more enthusiasm for increased transatlantic cooperation. Posted 4/11/08* * * CONSCIENCE DRIVES STEVEN SPIELBERG TO QUIT AS ARTISTIC ADVISOR TO THE BEIJING OLYMPICSConcerns over Dafur and China's relations with Sudan, plus human rights pressures, lead movie director Steven Spielberg to make the business decision to withdraw as artistic advisor to the Beijing Olympics.February 13, 2008 statement by Oscar award-winning movie director Steven Spielberg: "After careful consideration, I have decided to formally announce the end of my involvement as one of the overseas artistic advisors to the opening and closing ceremonies of the Beijing Olympic Games. * * * Prize Winning Ideas Show Promise for Ethical Innovation in the Finance IndustryYoung authors provide recommendations for establishing an ethical culture and how to move SRI into the mainstreamThe authors of the following two papers received top honors for their change-making ideas from the creators of the Robin Cosgrove Prize (See EthicsWorld News for NGOs for more details on the prize). The competition called for participants to submit papers that propose a plan for specific ethical dilemmas in the finance industry. Three winners were ultimately chosen, but we include here an overview of the top two winning papers. The complete papers of the seven short-listed nominees can be found on the Robin Cosgrove Prize website. Clare Payne, Associate Director at the Integrity Office of Macquarie Bank, Australia “Ethics or Bust: Beyond Compliance and Good Marketing” (download .pdf to read full paper) Ms. Payne addresses the numerous ethical challenges the finance industry currently faces. She asserts there is an inherent difficulty in this complex industry. Finance companies rely on measurable outcomes and therefore have trouble judging their own ethical performance, an area that is simply difficult to quantify. She believes the finance industry is currently failing to meet society’s expectations, and she proposes several ideas of how the industry may reform itself. She begins with the notion that legislation is not enough. Companies must have a strong ethical foundation as the condition under which the financial system can ultimately exist, she argues. This will require companies to devise ethical initiatives that start with senior management and the CEO. Her other recommendations include the creation of an independent “ethics body,” jointly funded by companies within the industry, which would advise board members; adopting an attitude that ethical behavior is just as important as profit generation and business development with financial incentive and disincentives to match; and providing ethical forums within companies where all staff members can engage with upper management about the ethical problems they face. Jonathan M. Wisebrod, Director for Villari, Singapore “Social Impact Ratings: How to Make Responsible Investment Appealing” (download .pdf to read full paper) Mr. Wisebrod believes in the importance of incorporating social impact factors into mainstream investing. He describes the myriad types of methods different firms use to come up with quantitative ways of measuring the social impact of a company. The problem he sees is that since methods still widely vary, the use of social impact ratings is less reliable and less effective. In his paper, Mr. Wisebrod argues for the creation of industry-wide standards, which could be voluntarily adopted by firms that determine social impact ratings. There are a number of reasons why social impact ratings are useful, he argues, beyond the traditional use of risk and return factors. Funds that overweight companies with higher ethical impact scores and underweight companies with lower ethical impact scores often perform better. A portfolio with a higher social impact rating can help single out the best portfolio with relatively equal risk/return characteristics. Considering the potential benefit of social impact ratings, Mr. Wisebrod believes a widespread, standardized rating system, using the UNEP Finance Initiative and the UN Global Compact as a starting point, could leverage those benefits. These agreed-upon rules of determining social impact ratings could become the baseline for compliance, he argues, with other firms developing more nuanced and sophisticated techniques down the line. Posted 1/22/08* * * Oxfam Says Drug Companies Have Made Little Progress Toward Universal AccessPreoccupation with short-term success is inhibiting real innovation, report saysAn Oxfam report called “Investing for Life,” assesses pharmaceutical companies’ progress toward universal access to medicine since its first report five years ago. In the report, which was released in November 2007, Oxfam determined some progress has been made in research and development (R&D), where many companies are strengthening their portfolios on key diseases such as HIV/AIDS, malaria, and TB, but there have been few steps taken in pricing and patent protection.Oxfam has identified two reasons why drug companies have been more reluctant to adopt more robust business models that would make universal access to medicine a core component. According to the report, companies are pursuing strategies more relevant to boosting their own reputations, which fall short of more sustainable strategies that could have a real impact. In addition, companies seem to be responding to recent, relatively poor financial performance in the industry. A reduction in profits has zapped companies’ motivations for adopting systematic tiered-pricing for developing countries. Another result is staunch inflexibility on intellectual property protection provisions, as outlined in the TRIPS Agreement, which keep drug prices high. The Oxfam report cites that only 15 percent of the world’s population consumes 90 percent of the world’s pharmaceuticals. Developing countries rely most heavily on generic competition to bring the price of medicine down. The current 20-year patent protection provision for new and inventive drugs stymies competition, thereby keeping prices high. Despite the numerous drug donation initiatives that some companies have implemented and an increase in R&D for key global diseases, there is a real lack of investment in diseases relevant to the developing world, according to the report. Oxfam believes that governments are primarily responsible for ensuring quality public health and universal access, but pharmaceutical companies can still have a “profound impact” – both positive and negative – in this process. Companies’ performance is evaluated in the report in three crucial areas – pricing, R&D, and patent protection.
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| Svetlana Pinto Novartis India Media Relations +91 22 2495 1074 (direct) svetlana.pinto@novartis.com |
Carrie Scott Novartis Global Media Relations +41 61 324 3435 (direct) carrie.scott@novartis.com |
E-mail: media.relations@novartis.com
Posted 8/7/07
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Challenges of CSR in Kenya and Zambia: Ways to Move Forward
Zambia and Kenya are two countries with significant development challenges and would very likely benefit from stronger Corporate Social Responsibility (CSR) initiatives. This study, released by the International Institute for Environment and Development, examines the current CSR challenges in Zambia and Kenya and discusses new strategies to further encourage private sector contributions to local communities.
In a comparative context, the concept of CSR is a fairly recent revelation in Zambia and Kenya. There does exist a strong commitment on the part of businesses to give back to the community; however, more substantial activities such as ensuring safe labor environments, producing products responsibly, and other safety standards are not well developed.
Companies in both countries are involved in activities they may call CSR but in reality, are more philanthropic in nature. Companies in Kenya donate heavily to organizations that foster better health care, education, and food security. Zambian companies also tend to donate to health and education, and orphanages are the primary recipients of aid. This philanthropic attitude is illustrated in one Zambian company’s mission statement, which reads in part “to recognise that we owe our success to the people of Zambia and that it is our responsibility to give back to the community in appreciation of their continued support.”
The HIV/AIDS crisis in both countries has been recognized by businesses as a major area where CSR activities can thrive. With organizations such as the Zambia Business Coalition of HIV/AIDS, businesses are recognizing how they can use their roles to further connect with society.
Joblessness is also a major problem in both countries. Therefore, a tradeoff has emerged between efficient job creation and quality job creation. Most jobs connected to international labor markets have external regulations to which they must comply, but producers who sell to the domestic market are less likely to enforce labor and environmental standards. In general, these companies are less likely to adopt business standards unless they see a clear business case that supports it. Workplace ethics still leaves much room for improvement and where CSR activities could really thrive.
In order for CSR to really deliver in these two countries, and Africa as a whole, the authors of the study propose several strategies:
Tackling capacity constraints. Currently, there is a general lack of capacity among the public sector to pressure companies to adopt labor and environmental reform measures. Civil society organizations exist but must become much stronger in order to make progress on the issue. Investing in these organizations would go a long way in encouraging responsible business activities.
Strengthening the business case. Many companies have few incentives to adopt labor and environmental standards. Compounding the issue, many consumers cannot pay a premium price for responsibly produced goods. Therefore, it is important to nurture existing socially-oriented companies by providing monetary incentives, such as allowing preferential access to capital. In addition, helping these companies grow would provide a role model for other businesses.
Localising the CSR agenda. In the past, the CSR agenda has been criticized for being insensitive towards local business priorities. This is precisely why it is important to adapt CSR to local needs. It is necessary to find the appropriate language for discussing CSR activities and to support dialogue between different actors within the private sector as a way of building trust and mutual understanding. The East African Business Summit hold annual meetings that adopts resolutions on CSR topics. This is an example of how businesses can engage with local civil society entities. However, the authors were careful to warn that when designing strategies for promoting CSR, one cannot fall into the trap of relying on a “one size fits all” attitude.
Together actions in these three areas – to tackle capacity constraints, to strengthen the case for responsible business practices in Zambia and Kenya, and to foster ‘localised’ CSR agendas – offer considerable potential to enhance the contribution of business to sustainable development in Zambia and Kenya.
To view the study in full, click here for the .pdf version.
The International Institute of Environment and Development is a London based international policy research institute that provides expertise in achieving sustainable development at local, national, and global levels. To learn more, visit the IIED website.
Posted 7/24/07
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Raising Our Game: Can We Sustain Globalization?
“Raising Our Game: Can We Sustain Globalization?” is a new report, realeased by SustainAbility on May 31, 2007, looks out to 2027 to examine future scenarios for the world’s sustainable development and to propose a new set of rules for business to rise to the unprecedented challenges ahead.
The interplay of sustainable development and globalisation is defining the future, and the stakes for the planet are rising. “Raising Our Game: Can We Sustain Globalization?” looks at the trade-offs involved in future choices over environmental and social value and at the role still to be played by innovation, entrepreneurship and the emerging economies of the South.
Although there are many opportunities to be had, certain cleavages still exist. The great divides within the areas of demographics, wealth, gender, nutrition, health, environmental resources, education, information, security, and governance could push the world in any number of different directions. This report examines several scenarios for what the future could look like as a way of better equipping businesses for potential challenges.
The report outlines seven recommendations for businesses:
1. Plan for the unexpected
In a world that is accelerating and becoming more complex, it will be vital to build in flexibility whether in technology platforms, supply chains, or human resource policies.
2. Find true South
The extent to which the interests of the emerging economies will clash with those of the developed North can scarcely be exaggerated. So focus sustainability efforts and investments on regions and cities where the population is booming and development needs are highest.
3. Don’t expect ‘nice’ companies to come first
Even the best corporate citizens can be damaged by scandals, controversies, and economic discontinuities. Over time the capacity to create true blended value will become a defining characteristic of tomorrow’s successful global businesses.
4. Co-evolve Earth’s immune system
Social and ecological shocks are already catalyzing the development of a civil-society-led ‘immune system’ for the Earth. Be part of this to help accelerate its development and serve as a source of market intelligence — and creation.
5. Think opportunity — and innovation
Reframe social and environmental issues not just as risks but also as sizeable market opportunities.
6. S-t-r-e-t-c-h
The scale of the challenges is immense and will require radical approaches to catalyze breakthrough solutions. Business and other leaders will need to reach beyond their comfort zones in finding new models, new technologies, and new partners in sourcing — and scaling — solutions.
7. Do the politics
This agenda is now political. Get involved and take stands. The time has come for the vision, courage, innovation, and enterprise needed to leapfrog into a different world.
To view the full report, click here.
Posted on 6/29/07
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Stronger Social Engagement Can Create Business Opportunities
Consultants at McKinsey & Company provide a model for incorporating sociopolitical issues into the strategic decision-making process.
The Stanford Social Innovation Review released an article in June 2007 which highlights the benefits companies can reap from engaging in social issues. The full article is printed below with permission from the Standard Social Innovation Review.
"Businesses have never been insulated from expectations about their social responsibilities.
What is different today is that the issues are far more numerous, complex, global, and fast-changing than ever before. Global warming, childhood obesity, unfair labor practices, air and water pollution – the list goes on and on. The impact that these issues can have on a company's future has also increased – to potentially devastating
levels – because today’s social activists have more avenues and tools to influence and mobilize public opinion around hot-button issues.
Some business executives are resisting these trends, arguing that a company’s obligation to society is only to provide the best return possible for its shareholders. But more and more executives are taking a strategic approach to the problem, recognizing that the short- and long-term interests of their company and its shareholders are increasingly intertwined with the interests of society, and that the best response is to become more engaged with the issues and activists in the nonprofit and public sectors.
We believe that business does have a strategic interest in becoming more aware of and engaged in sociopolitical debate and issues. The reasons are twofold. First, social and political forces can fundamentally alter an industry’s strategic landscape and even torpedo the reputations of businesses that have been caught unawares or are seen as being culpable in creating the problem. Second, companies that are engaged can significantly benefit from these trends, by creating new products, services, and markets for unmet social needs, as well as for new consumer preferences.
The challenge that business leaders face is to find ways to incorporate an awareness of sociopolitical issues more explicitly and proactively into their strategic decision-making processes. Companies must see social and political dimensions not just as risks – areas for damage control – but also as business opportunities. They need to scan the horizon for emerging trends and integrate their responses across the organization, so that the resulting initiatives are coherent rather than piecemeal."
Four Opportunities for Corporate Renewal
These issues are triggering the most innovative products and processes
- Bottom of the Pyramid. A growing number of products and services, such as microcredit and mobile telephones, are helping the poor people in less-developed countries who make up “the bottom of the pyramid.” For instance, Unilever, in partnership with the NGO Oxfam, now pays local employees 10 percent to 60 percent more than the Indonesian minimum wage, has injected more than $600 million into the Indonesian economy through corruption-free channels, and has developed and published social performance reports that track its progress against the program’s goals.
- Environmental Sustainability. The issue of environmental sustainability offers perhaps the biggest current opportunity for companies to develop new products. For example, GE’s Ecomagination initiative aims to increase revenues from environmentally friendly products and services to at least $20 billion in 2010, and to double investments in green R&D by the same year. Toyota’s hybrid automobile has already transformed the company in many stakeholders’ eyes. And Wal-Mart recently unveiled a long-term environmental sustainability strategy that includes using 100 percent renewable energy, generating zero waste, and creating sustainable products. Wal-Mart has also set numerous short-term goals, such as reducing the energy used by its stores by 30 percent.
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Public Health. Many companies are beginning to recognize that public health is an area where doing the right thing – such as tackling chronic developing-world diseases – helps the bottom line by reducing workforce turnover and absenteeism. In Angola, for example, Chevron has worked with NGOs to give antiretroviral drugs to employees with HIV, as well as to distribute mosquito nets, which help prevent malaria.
- Fair Trade. A small, alternative product – Fair Trade coffee – has spawned a large consumer market and spread beyond coffee to include other products. We expect many more deals in this area as leading consumer goods, retail, fast-food, and branded apparel companies acquire specialized “ethical” brands to improve both their reputation and their profits. Some companies, such as The Body Shop and Whole Foods Market, have long benefited from this trend. Recently, large global players have begun to buy Fair Trade companies, such as Cadbury Schweppes’ purchase of the chocolatier Green & Black’s, and Unilever’s purchase of ice cream maker Ben & Jerry’s.
Posted on 6/25/07
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The Past and Future of Sustainability
Sustainability is not a new idea. The 1987 Brundtland Report paved the way for the discussions on climate change taking place today.
This article, released by Policy Innovations on June 18, 2007, tracks the roots of the challenge of sustainability to the current role it plays in debates over climate change. It explains the impact the Brundtland Report has had on corporate sustainability, which led to the organization of the Climate Change Convention as well as the Kyoto Protocol. The author of the Brundtland Report, Norwegian Prime Minister Gro Harlem Brundtland, was recently appointed as a UN Special Envoy on Climate Change.
These are excerpts from the article, which can be found in full at Policy Innovations.
"Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs," the Brundtland Report famously states in its oft-cited quote.
The notion of sustainable development established by the Brundtland Report helped popularize the concept of sustainability, though the two ideas differ (despite the fact they are often used interchangeably.)
"The principles of sustainability, involving the prioritization of intergenerational equity—in addition to what you might call interspecies equity—seem to me to operate at a higher, almost civilizational level, than sustainable development," said John Elkington, chief entrepreneur of SustainAbility, the UK-based think tank and consultancy he founded about the same time as the launch of Our Common Future.
In other words, sustainability takes a longer, broader, and more interconnected view than sustainable development.
Over the past 20 years, the Brundtland Report has helped fuel many advancements. These include wider use of the language of sustainability, better understanding of the underlying science of sustainability, technological improvement (such as cleantech), and uptake of the sustainability agenda by financial markets. However, true sustainable development has been achieved "to a very limited extent indeed" since the publication of the Brundtland Report, according to Mr. Elkington.
Going forward, Ms. Brundtland has the opportunity to effect perhaps greater change, as UN Secretary-General Ban Ki-moon appointed her as a Special Envoy on Climate Change last month.
"Climate change is the most dramatic example of a sustainability challenge—in terms of civilizational resilience and survival—that currently faces us, so it is absolutely appropriate that she play that role," Mr. Elkington said. "But the nature of the challenge is very different to producing a report, and Norway is a peculiar country in world affairs, so not at all clear that her skills as Prime Minister are directly transferable—even were that the intention.”
Posted 6/25/07
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Beyond Corporate Responsibility: Social Innovation and Sustainable Development as Drivers of Business Growth
The Views of Patrick Cescau, Group Chief Executive of Unilever
Speech on May 25, 2007 at the European business school INSEAD, to the INDEVOR Alumni Forum on Integrating CSR into Business Strategy (Fontainbleu, France).
The Group Chief Executive Officer of Unilever, one of the world’s largest corporations operating in over 100 countries, asserts that corporate social responsibility is no longer a matter of choice. Patrick Cescau, argues that the "Agenda of sustainability and corporate responsibility is not only central to business strategy but will increasingly become a critical driver of business growth... I believe that how well and how quickly businesses respond to this agenda will determine which companies succeed and which will fail in the next few decades."
He stressed that:
- Economic development. Developing and emerging markets will be the main source of growth for many multinational companies in the years to come. Those that make a positive contribution to economic development and poverty reduction in these countries will be better placed to grow than those that do not.
- Social innovation. Heightened consumer concerns about social justice, poverty and climate change are raising expectations that companies should do more to tackle such issues. The brands that see these challenges as opportunities for innovation, rather than risks to be mitigated will be the successful brands of the future.
- Sustainability. As globalisation accelerates, and as the limits of the planet’s resources are reached, large companies and brands will increasingly be held to account on the sustainability of their business practices. The companies that succeed will be those that reduce their environmental impacts and increase the sustainability of their supply chains now, rather than wait until either legislation or public outcry forces them to do so.
The Unilever chief said, “Today social responsibility and environmental sustainability are core business competencies, not fringe activities. We have come a long way since the early eighties when the godfather of free market economics Milton Friedman proudly proclaimed that the only obligation which business had to society was “to make a profit and pay its taxes.”
“This change has come about for a variety of reasons. Certainly the political context has altered. The laissez faire economics which characterised the Reagan/Thatcher era have been superseded by a more realistic assessment of what the invisible hand of the market can achieve acting alone.
“Today there is a growing recognition that the social and environmental challenges facing us in the 21st century are so complex and so multi-dimensional that they can only be solved if government, NGOs and industry work together effectively.
“It is difficult, for example, to imagine a problem like climate change being addressed without the active participation of Shell, BP and Toyota. Likewise it is hard to see an issue like poor nutrition being effectively tackled without the involvement of the world’s major food companies.
“Slowly but surely both governments and NGOs are accepting that business has a role to play in the development agenda and that we can be trusted.
“But perhaps the biggest catalyst for change has been the increasing awareness within business itself that many of the big social and environmental challenges of our age, once seen as obstacles to progress, have become opportunities for innovation and business development.”
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Nobel Prize Winner for Economics Joseph Stiglitz Calls for New Approaches By Pharmaceutical Companies.
Professor Stiglitz argues: "Drug companies spend far more money on advertising and marketing than they do on research, far more on research for lifestyle drugs (for conditions like impotence and hair loss) than for lifesaving drugs, and almost no money on diseases that afflict hundreds of millions of poor people, such as malaria. It is a matter of simple economics: companies direct their research where the money is, regardless of the relative value to society. The poor can't pay for drugs, so there is little research on their diseases, no matter what the overall costs."
Here is an excerpt from his essay, which can be found in full at Policy Innovations:
"Part of modern medicine's success is built on new drugs, in which pharmaceutical companies invest billions of dollars on research. The companies can recover their expenses thanks to patents, which give them a temporary monopoly and thus allow them to charge prices well above the cost of producing the drugs. We cannot expect innovation without paying for it. But are the incentives provided by the patent system appropriate, so that all this money is well spent and contributes to treatments for diseases of the greatest concern? Sadly, the answer is a resounding "no."
The fundamental problem with the patent system is simple: it is based on restricting the use of knowledge. Because there is no extra cost associated with an additional individual enjoying the benefits of any piece of knowledge, restricting knowledge is inefficient. But the patent system not only restricts the use of knowledge; by granting (temporary) monopoly power, it often makes medications unaffordable for people who don't have insurance. In the Third World, this can be a matter of life and death for people who cannot afford new brand-name drugs but might be able to afford generics. For example, generic drugs for first-line AIDS defenses have brought down the cost of treatment by almost 99% since 2000 alone, from $10,000 to $130.
But, despite the high price they pay, developing countries get little in return. Drug companies spend far more money on advertising and marketing than they do on research, far more on research for lifestyle drugs (for conditions like impotence and hair loss) than for lifesaving drugs, and almost no money on diseases that afflict hundreds of millions of poor people, such as malaria. It is a matter of simple economics: companies direct their research where the money is, regardless of the relative value to society. The poor can't pay for drugs, so there is little research on their diseases, no matter what the overall costs.
A "me-too" drug, for example, which nets its manufacturer some portion of the income that otherwise accrues only to the company that dominates a niche, may be highly profitable, even if its value to society is quite limited. Similarly, companies raced to beat the human genome project in order to patent genes such as that associated with breast cancer. The value of these efforts was minimal: the knowledge was produced just a little sooner than it would have been otherwise. But the cost to society was enormous: the high price that Myriad, the patent holder, places on genetic tests (between $3,000 and $4,000) may well mean that thousands of women who would otherwise have been tested, discovered that they were at risk, and taken appropriate remediation, will die instead.
There is an alternative way of financing and incentivizing research that, at least in some instances, could do a far better job than patents, both in directing innovation and ensuring that the benefits of that knowledge are enjoyed as widely as possible: a medical prize fund that would reward those who discover cures and vaccines. Since governments already pay the cost of much drug research directly or indirectly, through prescription benefits, they could finance the prize fund, which would award the biggest prizes for developers of treatments or preventions for costly diseases affecting hundreds of millions of people."
The full article at Policy Innovations' website was printed there with permission from the Project Synidcate.
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Amnesty International Highlights Critical Human Rights Issues In China Within the Context of the 2008 Olympic Games
Amnesty International issued the following statement under the heading –
China: Olympics countdown -- important reforms marred by increasing repression
30 April, 2007.
(The full Amnesty International briefing, China: The Olympics countdown - repression of activists overshadows death penalty and media reforms, is available at: http://web.amnesty.org/library/index/engasa170152007)
Despite significant reforms to the death penalty system and new rules for foreign journalists in China, there is little evidence of improvement in other areas of human rights related to the Olympics -- and there has been increasing repression of human rights activism and domestic journalism, said Amnesty International today.
In its latest assessment of China's progress towards its promised human rights improvements ahead of the 2008 Beijing Olympics, Amnesty International also found that the Olympics is apparently acting as a catalyst to extend the use of detention without trial, at least in Beijing.
"The new extra layer of judicial review for death sentences and the relaxation of restrictions on foreign journalists are important steps towards better respect for human rights in China. Disappointingly, they have been matched by moves to expand detention without trial and ‘house arrest’ of activists, and by a tightening of controls over domestic media and the Internet," said Catherine Baber, Deputy Asia Pacific Director at Amnesty International.
"The failure to ensure equal rights and freedoms for both foreign and domestic journalists smacks of double standards -- China has yet to meet its promise to ensure 'complete media freedom' for the Olympics."
An overriding pre-occupation with ‘stability’ and ‘a good social environment’ for the hosting of the Olympics appears to inform this approach. While such concerns are understandable for any country holding such a major international event, policies and practices must be founded on respect for rule of law and human rights, or they risk fuelling further discontent.
Moves to reform or abolish 'Re-education through Labour' remain stalled, with the Olympics apparently being used as a pretext to extend its use in order to ‘clean up’ Beijing in time for August 2008. The Beijing police have also recently suggested that another form of detention without trial, ‘Compulsory Drug Rehabilitation’, may be extended from six months to one year to force drug users to ‘give up their addictions before the Olympics'.
"If the Chinese authorities and the International Olympic Committee are serious about the Olympics having a ‘lasting legacy’ for China, they should be concerned that the Games are being used as a pretext to entrench and extend forms of detention that have been on China's reform agenda for many years," said Catherine Baber.
Amnesty International has sent copies of its latest update to the Chinese authorities and the International Olympic Committee (IOC), noting that these issues are directly relevant to Beijing’s hosting of the Olympics and key principles in the Olympic Charter, such as ‘preservation of human dignity'.
"The IOC cannot want an Olympics that is tainted with human rights abuses -- whether families forcibly evicted from their homes to make way for sports arenas or growing numbers of peaceful activists held under 'house arrest' to stop them drawing attention to human rights issues," said Catherine Baber.
Notes to Editors
In the run-up to the 2008 Beijing Games, Amnesty International is publishing regular assessments focusing on four key areas of human rights relating to the Olympics: human rights activists, media freedom, death penalty and detention without trial. Key findings in the latest assessment are as follows:
Human Rights Activists
Examples of growing tolerance towards some individual activists are outweighed by the continuing harassment of others who try to report or campaign more widely on human rights violations. Two veteran Chinese dissidents who had been active in the 1989 pro-democracy movement were allowed to go to Hong Kong for the first time in mid April, and HIV/AIDS activist Dr Gao Yaojie was able to travel to the USA to receive an award. However, many more activists face intimidation, arbitrary detention and intrusive surveillance of family members.
· Ye Guozhu continues to serve a four-year prison sentence in connection with his efforts to organise a demonstration against reported forced evictions in Beijing. Relatives say he suffers from health problems, partly as a result of being tortured in detention, including a recent incident at the end of 2006 where local sources say he was beaten with electro-shock batons by guards at Chaobai prison in Beijing. Amnesty International considers him a prisoner of conscience and is calling for his immediate and unconditional release.
· Defence lawyer Gao Zhisheng is being held by police as a prisoner in his own home after being convicted of 'inciting subversion' in December 2006 in connection with his peaceful human rights activism. He has claimed to other activists that he had been treated harshly during his four months in formal police custody, including being handcuffed and forced to sit in an iron chair or cross-legged for extended periods, and having bright lights shone on him. He said he only agreed to confess to his ‘crime’ in order to protect his family.
Media Freedom
Despite promising 'complete media freedom' during the Olympics, the government is applying double standards for foreign and domestic journalists. On 1 January 2007, new regulations for foreign journalists took effect, allowing them to bypass permission from local authorities when conducting interviews and investigations. However, Chinese audiences are likely to be denied access to foreign news reports on sensitive topics, particularly after regulations were introduced in September that strengthen official controls over the domestic distribution of news from foreign agencies within China. Over recent months, other official rulings have tightened controls over domestic media, who now
· have to get permission before reporting on 'sensitive' historical events
· are banned from broadcasting news on 20 specific issues, including judicial corruption and campaigns to protect human rights
· are subject to a new penalty points system, where they may be closed down if they lose all their points over 'wrongdoings'. The system is aimed at a 'peaceful social environment ahead of... next years Olympic Games', according to a state media executive quoted in the South China Morning Post.
In recent months, the Chinese authorities have also sought to further tighten controls over the Internet. This has been followed by further censoring of certain websites, blogs and online articles. For example, a website providing news broadcasts over the internet, www.ccztv.com, was closed down in March.
Death Penalty
On 1 January 2007, the Supreme People's Court (SPC) formally resumed its role of approving all death sentences, a move that Amnesty International welcomed in the hope that it would reduce the number of people sentenced to death and spur reforms in the judicial system towards greater compliance with international fair trial standards.
But a lack of transparency means it is difficult to assess whether the SPC's review is having a significant effect. For example, the state news agency Xinhua reported on 19 March that the SPC had approved four death sentences since 1 January. Yet Amnesty International recorded the executions of at least 13 other individuals during that period while monitoring Chinese news reports -- none of them the same as the four people named by Xinhua. Amnesty International is calling on the Chinese authorities to publish further details of the SPC reviews and full national statistics on death sentences and executions.
Detention without trial
"We do not rule out the possibility of compelling all drug abusers in the capital to give up their addictions before the Olympics": Fu Zhenghua, deputy director of the Beijing Public Security Bureau.
Amnesty International continues to receive regular reports of individuals being assigned to 'Re-education through Labour' and other forms of administrative detention imposed without charge, trial or judicial review. The organization fears that these abusive systems are being used to detain petty criminals, vagrants, drug addicts and others to 'clean up' Beijing ahead of the Olympics.
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Business and the Gathering Climate Change Storm
The Conference Board says companies must address climate change
now in order to remain competitive
A new Executive Action Report by The Conference Board – a US-based business membership and research organization – examines the climate change (CC) debate through a business lens. It argues that climate change’s rising profile and need for carbon emissions reduction signifies an urgent need for companies to integrate CC considerations into their business strategies or face failure. According to the report, massive changes are underway in how the world approaches climate change – changes that present both challenges and opportunities for business.
Converging Forces are Aligning Climate Change with Business Strategy
In 2006 and early 2007 major trends and events dramatically increased the profile of climate change and carbon emissions and related concerns about energy supply and security. From a business perspective, these fall into several key categories:
1. Science and policy perspectives are converging. (There is) an even greater consensus both on the role of humans in climate change and the need for aggressive action to stabilize emissions in the future is emerging.
In the U.S., changes in the national political landscape and the intensity of state and local commitment to GHG (greenhouse gas) controls increase concerns about a fragmented regulatory regime. Numerous Congressional hearings are planned and varied Federal legislation is contemplated, while California, among other states, has gone forward with aggressive GHG policy implementation of its own.
2. Public and media interest continues
3. Financial institutions are warning about the impact of climate change on investment values. Recent UBS and Lehman Brothers cautionary warnings are the latest in a growing succession of reports focusing on investment in a “carbon-constrained future.” For example, Lehman Brothers suggest this issue "…is likely to prove to be another of the forces that will influence whether, over the next several years, any given firm survives and prospers; or withers and, quite possibly, dies."
2. High-profile companies are pressing for more level carbon playing fields both globally and in the U.S. For example, companies that were previously skeptical are becoming increasingly engaged in the issue. At the World Economic Forum in Davos, Switzerland, several companies from various countries announced a coalition to advance carbon trading.
According to Charles Bennett, Senior Research Associate at The Conference Board and author of the report, "Many of these trends have been in play for some time. But their frequency, pace and profile today are creating an unprecedented convergence and this is transforming the landscape for the issue in the United States."
Risks and Opportunties
The report argues that businesses are beginning to view climate change not just in terms of risk, but also in terms of opportunities:
Uneven Regulation
For large emitters of GHGs there is significant future risk, particularly in an uneven “playing field.” Regulation of GHG emissions could significantly increase their costs and reduce competitiveness, especially if not applied evenly equitably around the world – threatening their long-term sustainability.
Political pressure for curbing carbon emissions may evolve rapidly and result in a dramatic and disruptive change. Says Bennett: "…Companies need also to seriously consider participating in public policy discussions to be part of whatever 'solutions' or 'rules of the road' are being designed now."
Potential Opportunities
Energy companies and agricultural interests are pursuing a variety of alternative fuel possibilities. Vehicle manufacturers are embracing lower carbon-emissions technologies and the need for increased fuel efficiency, although at differing rates and with U.S. manufacturers preferring voluntary and not regulatory approaches to hastening this transformation. Construction companies, REITs and building users are expanding demand for "green" buildings, and materials suppliers and construction companies are responding to this demand. Software companies are seeing increasing opportunities in energy management, traffic flow planning and other areas of potential efficiency improvements.
Says Bennett: "Energy efficiency approaches of all types — many well proven but often allowed to languish during low-energy-cost times — are being embraced across the economy and around the world. Many companies are already embarking into the world of carbon trading despite the absence of a mandate to do so or an organized global market which many would consider ideal."
For information on the full report click here.
Posted 2/26/07
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Drug Companies and the Developing World
An Interview with Victoria Hale
Founder of OneWorld Health
By Eric Nee, Managing Editor of the
Stanford Social Innovation Review Winter 2007
On January 2, 2007, Jean-Francois Dehecq, Chairman of Sanofi-Aventis, one of the world's largest pharmaceutical companies, accused generic drug companies in the developing world of exploiting local populations and failing to focus on supplying medicine to their own countries (Financial Times, 1/2/07). Dehecq’s comments highlight an issue that has been raised by those outside the industry for years: as the major funders of medicinal research, what responsibility do drug companies have to society, particularly poor ones? In its Winter 2007 issue, the Stanford Social Innovation Review interviews an industry insider who works with drug companies, governments, and other organizations to develop medicine for traditionally ignored tropical diseases:
The pharmaceutical industry spends billions of dollars developing drugs to cure the ailments of wealthy Westerners, but very little to treat the diseases that kill millions of people a year in the developing world. Victoria Hale, who was recently awarded a MacArthur fellowship for her efforts, is trying to change all that.
Hale’s San Francisco-based nonprofit, Institute for OneWorld Health, is partnering with foundations, for-profit drug companies, NGOs, and governments around the world to bring these neglected drugs to market. She just scored her first success, receiving approval from the Indian government to sell a drug that cures visceral leishmaniasis. This disease, also known as black fever, kills 200,000 people a year and afflicts many times that number. And she has more drugs – to treat malaria, Chagas’ disease, and secretory diarrhea – in the pipeline.
In an interview with SSIR managing editor Eric Nee, Hale discusses what role the Bill & Melinda Gates Foundation plays in her organization, why for-profit drug companies are knocking at her door, and why her optimism about the chances of saving millions of lives every year is growing.
Why did you create a nonprofit drug company?
When there are blockbuster opportunities that generate significant revenues, the pharmaceutical industry runs to them. But when there are opportunities that affect very, very poor people, the industry doesn’t respond very well. That was the position that global infectious diseases were in.
So the question was simple: If the barrier to developing drugs for these medicines is the profitability requirement, then it should be possible to develop these medicines within a pharmaceutical company that doesn’t have that profitability requirement. That’s the experiment of OneWorld Health. And the proof of concept is that we just achieved approval from the Indian government for paromomycin IM [intramuscular] injection to treat visceral leishmaniasis.
People in other industries have launched for-profit companies with a social mission. Why didn’t you take that approach?
Research and development costs for new medicines are in the tens of millions of dollars. The traditional sources of funding that would lead to a for-profit entity – venture capital – just didn’t work. We couldn’t even get two minutes in front of a venture capitalist. Therefore, going forward with philanthropy first was the way to do it. Now, is it necessary to remain simply a nonprofit pharmaceutical company? The answer is, we don’t know. Because we have proven that we can develop a drug and bring it to market, we now have potential investors stepping forward to ask us to consider other models that are not not-for-profit. So would we be willing to open up to other possibilities? Absolutely.
How much money did it take to bring paromomycin to market?
To get it to where it is now with restarting, manufacturing, clinical trials, and regulatory approval, we put in about $17 million. [The cost of bringing a drug from the research laboratory to the market is usually much more than $17 million. OneWorld Health was able to do it for less because paromomycin was a preexisting drug that was developed for another disease and was no longer covered by a patent. OneWorld Health had to conduct only the final clinical trials confirming that the drug would cure black fever.]
How much are you going to charge for the drug?
We priced it at the cost of making it and packaging it. Black fever affects the poorest of the poor. These are people who live on 30 cents a day, so recouping our $17 million isn’t feasible. [A Gates Foundation grant covered those costs.] There are some diseases that just have to be adopted and funded by philanthropic-based approaches. There are other global infectious diseases where I absolutely believe that we can get there by very creative models, whether they are hybrids – something in the middle space between for-profit and not-for-profit – or straight for-profit. Particularly with really big diseases where potential sales are large.
Malaria and diarrhea are our next two programs. The drugs for them are not blockbuster drugs by any means, but these diseases affect enormous numbers of people. They’re even important in the West for soldiers and travelers, and [in developing countries] they are also significant for people who live in urban settings and have higher incomes, and for people in the middle class. With tiered pricing we can bring back revenues from sales to some of the wealthier groups and still be able to provide the drugs at cost or maybe even below cost to reach the poorest of the poor.
How has the global health industry changed since you started OneWorld Health six years ago?
We were an oxymoron, something that people would laugh at and say, “Oh, that’ll never work.” Now we’re winning awards. The world has moved in a relatively quick period, and I think it’s because of these public- private partnerships that have come together. To a great degree they have been funded and inspired by the Bill & Melinda Gates Foundation. [Tropical diseases] really was a dead field. Now, they [the Gates Foundation] say, “If you research it and discover it, we will develop it and get it to market.” That’s a big deal, because that’s the risky part that pharmaceutical companies have to do. That’s where these drugs have to compete with a diabetes drug or a heart disease drug.
Aren’t for-profit companies beginning to develop more drugs for tropical diseases?
Yes. A spark has been lit in the field and people are going back to look at their shelves, to look in their notebooks, to explore projects that were put aside and reviving them. Companies that don’t have opportunities in-house are doing a couple of things. Some are working with public-private partnerships to undertake research for new drugs, like the Global Alliance for TB Drug Development or the Malaria R&D Alliance. Others are involved in distribution or development partnerships. We’ve talked with companies about partnering on distribution or doing pediatric formulations or any number of other elements of their product development. Lots of companies want to get engaged. Global health is no longer seen as an insurmountable problem.
You’re in an industry where people get paid a lot of money – to be a biochemist at a drug company, for example. And you’re trying to hire these same people. How do you attract employees?
It has been hard. There are pharmaceutical scientists who entered the industry because they are healers, and many of them have said: “I can’t remember the last time that I felt that my contribution directly benefited humanity. And I can get that by working with you on a daily basis.” So some people reach a point in their life, and it may just be for a period of time, where this is what they want to do, and they give up stock options and they give up big bonuses and they even take a cut in their salary. That’s who we’re looking for, because this is really hard work.
I assume from this that you can’t pay competitive salaries.
We pay about 75 percent of what they pay at a for-profit drug company.
Will you ever be able to pay the same as for-profit companies?
I would like to get to that point. We will never have stock options. And bonuses will be less than in the for-profit industry. But if we generate our own revenues, we can apply those revenues back into the company to retain the best people. Right now we do have some employees who say, “I can only do this for a certain amount of time, but it just means so much to me to be here right now.” And if those are people that we really want to keep, we’re going to have to step it up in a couple of years.
What part of the drug development process do you focus on?
We’re in downtown San Francisco, so we don’t have a factory and we don’t have any laboratories. We partner to do our laboratory work and our manufacturing. We do hold on to the “D,” the development part, where you’re doing animal studies and clinical trials. But for the “R,” we really do need to partner with the inventors of the technology.
How difficult has it been to get drug companies and others to give you access to their research and their patents?
At first it was quite difficult. We had a few donations and offers of a few licenses, but our first product was an off-patent drug. Now we have a very different story. It’s not as though every company is stepping forward and saying, “Take whatever you want.” But we do have companies saying: “We have millions and millions of compounds. Do you want to use our library, our chemicals, and see if they work for some of your diseases?”
We also have companies who’ve stepped forward to say: “This drug is on the market for our Western market for disease A, and we know from the literature that for animals it could be effective in this tropical disease B. We’d be willing to consider working with you.”
And that’s all happened in just a few years. I knew that the industry wanted to do this, and can do this. There just had to be players for them to work with. But it can’t just be OneWorld Health. There need to be other players as well whom the industry can work with.
We’ve talked about drugs for the developing world. What about drugs for neglected diseases in the Western world?
Those would be “orphan” diseases, like cancers or neuron-degenerative diseases. There are multiple disease research foundations in the country that have been funded now for a number of years. The Cystic Fibrosis Foundation is one that has gone on to actually develop products with companies. About 20 of these research-focused foundations have come to us and said: “We think we have something ready for development. Will you do it at OneWorld Health?” And we have said: “No, we won’t develop an orphan disease drug at this point. Our focus is on people living in poverty globally. But why don’t we help you start a not-for-profit company, or a hybrid company, to get these orphan drug leads moving, and perhaps once they reach a certain stage, maybe you can get a company to take them on?” We may go back and reevaluate whether we want to develop a drug for a Western market, but right now we’d rather help others and share our model and stay focused on global diseases.
Will we see some of those nonprofits emerge?
We’ve helped two nonprofit vaccine companies and two diagnostics nonprofits get started. I do believe that there are some diseases that are best treated without there being a requirement for a return on investment or even a recouping of the R&D costs. The technology’s there, the need is there, the passionate expertise is there. It just needs to be housed in something that is a for-profit/not-for-profit hybrid, whatever you want to call it. OneWorld Health’s model should have a second generation that has evolved.
Whether OneWorld Health does that – I hope that we do, because I think it could be really fun – or whether we empower others to go out and do that, the more, the better.
Posted 1/18/07
Reproduced with Permission
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A New CSR—Company Stakeholder Responsibility
“By talking of business and social responsibility as if they are two separate things, we unintentionally promote the idea that they involve discrete thought processes and activities”
– From “Company Stakeholder Responsibility: A New Approach to CSR”
In the Business Roundtable’s Institute for Corporate Ethics latest Bridge Paper, Company Stakeholder Responsibility: A New Approach to CSR , authors R. Edward Freeman, S. Ramakrishna Velamuri, and Brian Moriarty describe how changing the traditional model of corporate social responsibility to one more focused on the interests of stakeholders will improve the management, ethics, and long-term success of companies.
The following excerpts summarize the report, which is available at www.corporate-ethics.org.
Corporate Social Responsibility has outlived its usefulness, because it is flawed in two respects. First, it promotes the “separation thesis,” the idea that business issues and social issues can be dealt with separately. This endorses the destructive idea that the underlying structure of business is either not good or is morally neutral which, “fails to recognize the central role business plays globally in improving the well-being and prosperity of hundreds of millions of people. And, it can cause companies to act in bad faith and get involved in matters where they have little expertise” (p. 6 of the report). The challenge is to promote a different way of doing business that integrates considerations of business, ethics, and society. A stakeholder approach acknowledges the intertwined nature of economic, political, social, and ethical issues. Centered in the practice of management, it provides the manager with a pragmatic framework for action.
The second flaw with Corporate Social Responsibility is its focus on corporations. Social responsibility does not only apply to corporations—it applies to all organizational forms: “The focus on “corporate” implies that corporations, due to their size and success and perhaps their shareholding pattern, have to shoulder responsibilities that smaller and more closely held businesses do not. Why?” (p.7 of the report). A stakeholder approach applies as much to an entrepreneurial start-up and to a mid-sized closely-held firm as it does to a corporation with diffuse ownership.
Based on a stakeholder approach, a distinct CSR—Company Stakeholder Responsibility—outlines a new capability for organizations to develop. The following is a summary outline of this new CSR model:
Company Stakeholder Responsibility in Practice: Four Levels of Commitment to the Stakeholder Approach
Company stakeholder responsibility requires that companies be committed to a stakeholder approach to management on the following four levels.
Level 1 - Basic Value Proposition• How do we make our stakeholders better off?
• What do we stand for?
• What are the principles or values on which we base our everyday engagement with stakeholders?
Level 3 - An understanding of broader societal issues• Do we understand how our basic value proposition and principles fit or contradict key trends and opinions in society?
Level 4 – Ethical leadership• What are the values and principles that inform my leadership?
• What is my sense of purpose? What do I stand for as a leader?
Ten Principles for Company Stakeholder Responsibility
There are 10 general principles that collectively develop a “mindset” necessary for entrepreneurs and managers to understand and practice all four levels of Company Stakeholder Responsibility:
1. Bring stakeholder interests together over time.
2. Recognize that stakeholders are real and complex people with names, faces and values.
3. Seek solutions to issues that satisfy multiple stakeholders simultaneously.
4. Engage in intensive communication and dialogue with stakeholders not just those who are “friendly”.
5. Commit to a philosophy of voluntarism—manage stakeholder relationships yourself, rather than leaving it to government.
6. Generalize the marketing approach.
7. Never trade off the interests of one stakeholder versus another continuously over time.
8. Negotiate with primary and secondary stakeholders.
9. Constantly monitor and redesign processes to better serve stakeholders.
10. Act with purpose that fulfills commitments to stakeholders. Act with aspiration toward your dreams and theirs.
Posted 12/14/06
The Double Bottom Line: The Failures And Future of the Social Enterprise
The success of "social enterprise" model, a business whose stated goal in not only to make money but equally important to promote a social cause, has serious implications for the extent to which CSR can be merged with mainstream profit-generation. In this article from the Stanford Social Innovation Review, author Jim Schorr argues that that the first generation of U.S. social enterprises is largely a failure. By analysing past mistakes and his own personal experience, however, Schorr offers two solutions for making the "social enterprise" both profitable and effective.
To download this article as .pdf
Social Enterprise 2.0
Moving Towards a Sustainable Model
by Jim Schorr
Stanford Social Innovation Review, Summer 2006
In 1994, Juma Ventures Opened a Ben & Jerry’s ice cream store in San Francisco that was designed not only to make money, but also to provide jobs and training to disadvantaged youth. This social purpose venture was among the first in a field that has since grown dramatically. Today, many nonprofits across the country operate similar social enterprises and related earned-income initiatives. A recent Bridgespan Group survey of nonprofit executives found that half of these practitioners expected that earned income would play an important role in their organizations’ future.
When we look back on the experiences of the last 12 years, the vast majority of which are exceedingly positive, one inescapable conclusion remains. The first generation of social enterprise has failed to realize its vision of using business models to create both social and financial value. A number of factors explain this, and all relate to one central reality: The business models that have been developed during the first generation of social enterprise are not capable of generating positive social and financial outcomes. The overwhelming majority of social enterprise ventures are small retail businesses – ice cream shops, thrift stores, restaurants, cafes, and the like – that have not succeeded and never will succeed on a double bottom line basis.
The primary problem is that the vast majority of these businesses are inherently small, often generating as little as $200,000 in annual revenue. Because they are small, they cannot create a meaningful number of job opportunities and cover the incremental training, management, and other costs associated with employing an unskilled and disadvantaged workforce. With little ability to grow business revenues, these social ventures cannot reach a level of scale that provides sufficient revenue to cover these additional “social costs.” Our experience at Juma Ventures suggests that a social enterprise’s revenue needs to approach $1 million annually to create a significant number of jobs and to operate in a financially sustainable manner. Very few retail businesses will ever approach this level of sales.
Most social enterprise pioneers chose to develop small retail businesses because they were relatively simple to operate. They rightly expected that the introduction of a social mission into a traditional business would produce ample complexity on its own. But like virtually all businesses that involve minimal complexity, small retail businesses produce very low profit margins. Operated on a purely for-profit basis, these businesses would do well to generate 5 to 10 percent net profits. This margin is insufficient to cover the additional costs of the social mission activities, as the incremental costs of employing unskilled workers overwhelm these businesses’ natural ability to generate income.
Walking the Double Bottom Line
Fortunately, the lack of success in social enterprises’ finances has been accompanied by remarkable success in their social mission objectives. The workplace has proven to be a highly effective environment for delivering social interventions – simply put, income-producing jobs in real businesses prepare people for participating in mainstream society in ways that no curriculum-based job training program possibly can.
The Roberts Enterprise Development Fund (REDF) commissioned a study starting in 1998 that, to date, includes nearly 1,000 client participants in five nonprofit organizations with a combined 19 social enterprises. The study has found that 75 percent of participants retain their jobs over a two-year period, with many transitioning into mainstream employment. In addition, their monthly income triples, educational levels improve, housing stabilizes, and criminal recidivism rates decline dramatically.
With these positive social mission results, one might reasonably ask: “So what’s the problem? Isn’t the social mission more important than the financial mission, anyway?” I agree that the social mission of these organizations is primary, but that sentiment alone won’t keep the doors open at all of the struggling social enterprises that continue to survive today. The problem is that the vast majority of these ventures, as they exist today, are not sustainable. Unless these organizations develop new models that enable social enterprises to deliver double bottom line results, or find permanent funding subsidies for their activities, their chances of long-term survival are not good.
Most social purpose businesses lose money and require ongoing funding subsidies to support their operations. Unfortunately, these subsidies are not readily available. Although foundations and individuals may support these organizations in their early stages of development, practitioners cannot expect to receive this support in perpetuity, because the appeal of social enterprises to many of these donors is rooted in their potential to become self-sustaining.
To attract the funding for overhead and other indirect expenses that social enterprises don’t begin to cover, as well as to enhance client services and outcomes, social enterprise practitioners have developed support services that supplement their employment programs and enable these organizations to attract grants and donations. In the best cases, these services complement the employment programs and are tightly integrated with them. In most others, this approach becomes a formula for a schizophrenic program design that lacks the focus needed to serve the target population effectively.
By setting a clear objective for financial sustainability from the outset, the players in this field created the expectation among funders that ongoing subsidies would not be required to support these ventures. Most social enterprises today continue publicly to proclaim the double bottom line as their goal and use terms such as “earned income” that misrepresent the financial performance of these enterprises. Meanwhile, virtually all of these enterprises lose money and have little hope of changing that trend. This dynamic perpetuates the expectation among funders that supporting these enterprises is unnecessary.
New Models for Sustainability
Today, the social enterprise field is at a crossroads. We can’t expect to operate our current enterprises as-is over the long term, so we must find new solutions to sustainability or face eventual extinction. There are two distinct options for moving in a direction that has the potential for long-term sustainability. The first is to develop new social enterprise business models that can scale to a size where they generate sufficient revenue to cover both direct and indirect business costs, as well as the incremental costs that are a function of the social mission. It’s a business truism that it takes revenue growth to mask operating cost inefficiencies, and the social enterprise approach will always have inherent inefficiencies.
The second option is to acknowledge that the vast majority of existing social enterprises will never generate sufficient net income on their own, and to develop stable, ongoing funding sources to subsidize the shortfall. When social enterprises are repositioned in this way, the argument can be legitimately made that they are perhaps the world’s most effective employment programs for people who lack access to mainstream employment opportunities. And when one considers that social enterprises often fund 80 to 90 percent of their total costs with revenue that the businesses generate, a compelling case can be made that these ventures are among the most efficient as well. For example, Juma Ventures was recently evaluated as “one of the most efficient programs in the city that have a strong, positive impact on its youth participants” by San Francisco’s Department of Children, Youth & Their Families.
I believe that a compelling case could be made for providing ongoing funding subsidies to sustain social enterprises. The challenge with this approach is in the communication and education process, because foundations, government agencies, and individual donors are not conditioned to support continual losses at social purpose businesses. This strategy would require a field-level effort to mobilize social enterprise practitioners to band together and build a case for permanent funding subsidies. A group such as the Social Enterprise Alliance and its large and growing membership base could lead this initiative.
Although both approaches are valid, Juma Ventures has decided to focus on creating new and more sustainable social enterprise business models. We have chosen this path because it maximizes our potential impact – both with youth participants, where we seek to serve thousands, and with practitioners, where we intend to create a model for scaling a social enterprise that informs the work of others in our field. In the past year, we sold our Ben & Jerry’s ice cream shops and elected to focus on the concession business we operate at Monster and AT&T parks in San Francisco (which host the San Francisco 49ers and San Francisco Giants). In 2006, we are expanding this social enterprise to Oakland, as the initial phase of a growth initiative that has the potential for national replication.
Although it is certainly true that I am an optimist by nature, I believe there is good reason to be enthusiastic about the future of social enterprise. This field is still in its very early stages of development – barely a teenager at this point – and I expect that the coming years will bring continued innovation and increasingly positive social and financial outcomes
Jim Schorr is the executive director of San Francisco-based Juma Ventures, one of the leading nonprofit social enterprises in the United States. In 1993, while an MBA student at Northwestern University’s Kellogg School of Management, Schorr co-founded Net Impact, an organization comprising more than 10,000 students at 115 business schools worldwide that is dedicated to using the power of business to improve the world.
A publication of The Center for Social Innovation at Stanford Business School, The Stanford Social Innovation Review provides non-profits, foundations and socially responsible businesses with practical strategies, tools, and insights.
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The Myth of CSR:
The Problem With Assuming That Companies Can Do Well By Also
Doing Good Is That Markets Don’t Really Work That Way
By Deborah Doane,
Chair of the CORE Coalition, UK
Stanford Social Innovation Review
Fall 2005
“The unprecedented growth of CSR may lead some to feel a sense of optimism about the power of market mechanisms to deliver social and environmental change. But markets often fail, especially when it comes to delivering public goods; therefore, we have to be concerned that CSR activities are subject to the same limitations of markets that prompted the movement in the first place.”
In her article, “The Myth of CSR,” writer Deborah Doane argues that, despite the enormous popularity of and attention paid to the Corporate Social Responsibility (CSR) movement, CSR will fail to seriously change capitalism because its assumptions are ultimately incompatible with market realities. Doane begins by acknowledging that the rise of CSR has done much to raise public awareness of corporate behavior, for example by fueling the growth of “ethical consumerism” and the “fair trade” industry. She also notes that, in certain circumstances, responses to public pressure can produce substantial changes in the basic practices and transparency policies of individual companies (for example, following a string of lawsuits over sweatshop conditions, Nike is now considered a world leader in transparency and improving labor standards in Third World factories). According to Doane, however, many CSR improvements are skin-deep and do not seriously resolve the fundamental tension between corporate and public welfare. Because they rely on the market itself for impetus, CSR approaches are vulnerable to market failures such as imperfect information, externalities, and free riders. Proponents of CSR, she argues, have placed too much emphasis on the ‘cure-all’ potential of CSR by over-simplifying the complex incentives that drive markets and by failing to address the fact that, eventually, “trade-off’s must be made between the financial health of the company and ethical outcomes.” “When they are made,” she continues, “profit undoubtedly wins over principles.”
Doane makes her argument by deconstructing what she calls “the four key myths” of CSR: 1) That the market can deliver both short-term financial returns and long term social benefits; 2) That the ethical consumer will drive the charge; 3) That there will be a competitive “race to the top” over ethics amongst businesses; and 4) That in the global economy, countries will compete to have the best ethical practices. She concludes by outlining several alternatives to CSR, such as direct regulation, social labeling, and changing the legal structure of the corporation.
Doane’s article raises questions about the viability of CSR as a stimulus for good corporate citizenship. When the demands of the stock market require most companies to adopt two-to-four year time horizons in considering investments, is it realistic to expect that they place the long-term goals of ethical reputations and better labor practices, however profitable they may eventually b