The Rise of Corporate Social Responsibility – A Tool for Sustainable Development in the Middle East argues that companies can contribute to sustainable economic development in the MENA region through corporate social responsibility (CSR). The report was issued by Booz & Company’s Ideation Center, its “think tank in the Middle East [providing] thought leadership through insightful research, analysis, and dialogue that is true to the Middle East’s dynamics.”
The report raises several questions; some are existential, while others focus on distinguishing between short-term – “give him a fish” – approaches and long-term “teach him to fish” options. I have never been a great fan of CSR, simply because it is not, in my analysis, a substitute for investments in sustainable economic development that directly create jobs. This report takes a different tack, saying that “Companies, as good corporate citizens, must become involved in sustainable development and contribute to the broader improvement of their societies … [by aligning] themselves with these national goals [job creation, poverty alleviation, and the environment] that are built around sustainable development, using the powerful tool of CSR initiatives to help achieve them.” CSR, in their assessment, is both a social force for reducing economic inequality and a means of improving environmental conditions. Their case studies in the region are helpful yet do not address the core issue: can CSR have a long-term impact beyond philanthropy that supports greater opportunities for more equitable economic growth?
What is CSR?
Perhaps the first issue is definitional, as the United Nations Development Project (UNDP) defines sustainable development as “distributing the benefits of economic growth equitably, regenerating the environment rather than destroying it, and empowering people rather than marginalizing them.” Is this consistent with what the region is thinking? According to the Booz report, “Companies and government officials interviewed in our study most frequently cited the need for robust job creation to nurture economic growth and spread benefits among the population as the most salient issue.” This is the dilemma, as few of the examples provided in the report are about job creation. More are about philanthropy, which, while laudable, does not necessarily lead to enhancing job growth over the medium to long term.
I am not saying that CSR is not important. In fact it is a key component of a mature approach to economic growth; but it lacks a defined connection to job creation. As the report highlights, “half of the region’s population is under the age of 25…among those 14-24 years of age, approximately 25 percent lack a job…” So building homes for the poor, insisting on higher environmental standards for manufacturing facilities, and encouraging literacy are laudable, yet my assessment is that these programs must be part of a larger coherent CSR strategy that is wedded to generating meaningful employment if it is to go beyond alleviating short-term social and environmental issues.
And the challenges for recruiting partners into CSR programs can be quite daunting, as there are few if any incentives for employees to participate. Less than 14 percent of firms surveyed have formal CSR-related key performance indicators, “and just 11 percent include CSR performance in their bonus schemes.” So to make CSR effective over time, the report points to a process to close the gap between a company’s individual CSR programs and a country’s national development priorities.
Another challenge is that countries diverge in their CSR priorities, making it critical to define local needs rather than using an imported template. In the MENA, the focus is on issues ranging from alleviating poverty and supporting charities and community projects to education and employability. There is not a broad consciousness of the need to address environmental issues, which is a priority elsewhere. “Executives [in the MENA] are struggling to relate environmental issues to profitability and long-term business objectives.” In many cases, environmental concerns are still seen as external to the company rather than incorporated into its internal operations.
Building effective partners
The report also talks about the importance of proactive government and civil society participation and encouragement of CSR. On this theme, a very interesting CSR project is run by SEDCO Holding, a Saudi Sharia-compliant wealth management company. After a national survey indicated that young Saudis have few skills in managing their personal finances, SEDCO initiated a financial literacy program for university students. It is a private-public partnership that involves an international NGO, resulting in a great example of how CSR can make an economic impact beyond charity. Smarter consumers make smarter decisions and can transfer this knowledge into their own business practices. This is a forward-thinking project that benefits all of the stakeholders and provides best practices that can be emulated elsewhere.
A positive recent development noted in the report is the notion of corporate governance – responsible and accountable company leadership. “It was only within the last 10 years that an Arabic word for corporate governance, hawkamah, was coined.” In the transition from family-owned private firms to corporate-managed public entities, a company’s identity shifts beyond the personality of the founders to values expressed in their corporate mission. It is this redefinition of company identities that holds the most promise for the inclusion of CSR in a firm’s objectives.
Just as long as you don’t forget that the bottom line is profitability and job growth!