Can business be a dynamic force for Development?

In this annual CSR lecture to the Business & Community Foundation India, Robert Davies (CEO of the International Business Leaders Forum - IBLF) speculates that India will be the focus for a rethinking about Corporate Responsibility. The impact of globalisation and India's rapid economic growth coexist with high levels of endemic poverty in a democratic market economy with free communication. The conditions will require business to engage beyond CSR compliance and "do no harm" strategies to models that positively impact on development through market innovation, multi business collaboration and partnerships. IBLF is launching a 'Business and Development Goals' (B+DGs) Framework that will define the new approach to be adopted by progressive companies engaged in emerging markets challenged by poverty and disaffection, and benchmarked to the UN Millennium Development Goals. The framework is to be piloted in countries and will be the subject of a business task force to be tested in India.

As business is the motor of economic growth and wealth, the coexistence of unparalleled opportunity and the poverty gap has unavoidable implications. Trust in business is low and there are widespread suspicions of benefits of globalisation and open markets - not least here in India.

The pressures on business to be socially responsible have never been higher all around the world, as is widely confirmed by public attitude surveys, such as those by Globescan. Business is also operating in a more transparent environment and can easily become the target of activists, particularly if they have well known brand names.

Against this background of growing expectations that national and international business should demonstrate corporate responsibility, and the increasing awareness of the scale of development challenges in fast growing emerging markets such as India, business has three strategies.

• "Do no harm" - which is the classic demand of CSR, not least in the rich western world. This means that business meets higher business standards in terms of environment, health and safety, labour standards such as human rights and avoidance of child labour, and transparency and avoidance of corruption). These are the basics of corporate responsibility and form the licence to operate and be a corporate citizen within a country. They are also the basis of the UN Global Compact and its ten principles. But the sum total of business CSR strategies and trickle down theories does not guarantee that business can be a positive force for development and poverty alleviation. In fact compliance with CSR policy could even have unintended effects in the name of risk reduction of reducing the engagement of companies in employment, supply chains and investment in poor countries and communities.
• "Business can do good" - which is the strategy in which business is not only compliant with good business standards, but reaches out in its business activities to optimise the positive spin-offs for society and local communities. This would include activities such as training and human resource development, health promotion and community engagement. This has been the classic extension of business into proactive community involvement strategies to share business benefits with workers and communities.

The fundamental issue that can still be raised is whether business doing good as it goes about its business, which is a wholly socially responsible strategy, is capable of making a real impact on the scale of development needs and growing poverty gap in the emerging markets or whether a more radical strategy is demanded.

Much hinges on how we see the role of governments and the boundaries of business. It is easy to assume, as is the case in most economically advanced OECD economies, that these questions are the responsibilities of government. What is far more clear now is the scale of the development challenges and the lack of capacity and even skill of government to address these massive demands of poverty. In addition is the overlay of corruption and historical inefficiency of governments' delivery of development and a policy and equitable regulatory environment that is conducive to sound investment, honest regulation and public benefit.

Governments through the United Nations set six years ago the Millennium Development Goals (MDGs) that define the commonly agreed eight goals to be met if poverty is to be significantly reduced by 2015. Over the past four years IBLF has promoted widespread debate on how business can respond. The Government of the Philippines adopted our Business and the MDG's framework advocating it as an inclusive strategy for business as part of the nation's attack on poverty. Many companies are using the MDGs as a benchmark; Nestlé recently with our advice became the first major company to report its business contributions against the UN MDGs and is committed to regular reporting of progress.

While the MDGs can be seen as the consensual framework for what is needed, in the view of the IBLF and many of our corporate partners who are amongst the leading investors in emerging markets and developing countries, this simply will not be achieved without active business involvement and sound market based growth.

Business cannot legitimately or practically take on the prime responsibility for public service provision and safety nets. Yet it will be the single motor for the growth that will underpin it. So the answer lies in building partnerships that align business operations with inclusive economic development, linking business competencies and market building with public infrastructure and benefit - or pro-poor business led growth.

There are now more than enough models in India and elsewhere that suggest a third strategy for responsible business:

• "Business as a positive force for development" - is a new paradigm that requires a stronger business vision for engaging with business opportunity in society, innovation in business models and products in addressing markets and seeing the poor as consumer and their local micro markets as partners. It requires new forms of partnership - business clusters linking credit, capital and communications, distribution networks and supply chains, outreach with local communities and voluntary groups that can blend and dovetail commercial business models with diffused local communities. These models will include the pioneering distribution models of Hindustan Lever and ITC, the banking outreach of ICICI Bank, the innovative payment models of the cell phone companies, the credit finance systems of building materials companies and the supply chain innovations of Nestlé, Cadbury and TetraPak, and many more.

The role and potential of business as a contributor to development came clearly into focus in the response to the tragic Asian tsunami, which IBLF learned through the work of an IBLF Tsunami Recovery Business Task Force, who visited tsunami hit communities including Tamil Nadu and published a final report last December. It found that much of the early response had come from small local enterprises and medium sized companies, contributing what they did best - logistics, management, water and food distribution, communications and specialist rescue skills and equipment.

The task force also found that the skills required for recovery were those most closely associated with business skills and competencies - credit management, building, economic reconstruction, project management, boat-building and skills of disciplined workers and professionals. Our report "Best Intentions: Complex Realities" concluded that humanitarian relief could be transformed by business DNA and partnerships.

We believe that business being a positive force for development will be the paradigm that shifts fundamentally from the former "do no harm approach" and moves way beyond the corporate philanthropy model. It will drive the CSR agenda as a form of mainstream business building sustainable and profitable business models and seeing the heart of the business, supplemented by strategic social investment, as the front line in making poverty history.

For this reason, and building on our work with the UNDP on business and the MDGs', the IBLF has developed a new framework that I am sharing publicly for the first time today in New Delhi. It will also be the subject of a review by a business task force in India later this month. This is the "Business and Development Goals" (BDGs) framework.

The IBLF Business and Development Goals Framework (B+DGs)The Business and Development Goals Framework defines a five level strategy by which responsible business can align its business models to be a positive contributor to development - by setting goals for contributions and positive change.

1. Business Standards: setting and maintaining business standards in environment, human rights, labour standards, health and safety, transparency, integrity and marketing.
2. Trade and Investment: investing in poor markets, trading with poor communities, and returning public revenues.
3. Employment development: training and building human capital, employment, sub-contracting, supply chains, distribution chains.
4. Business solutions: contributing through product and service innovations and applying core competencies to providing solutions to economic and social challenges in communities, new distribution models, microfinance access, affordability models and public health and education campaigns, water access, action to reduce school drop out.
5. Business clusters to build markets: Multi company collaboration in building local markets, credit access, shared distribution and infrastructure.It is critical that these are not just PR and communications strategies, that attempt to communicate the positive good business contributes to local economic development, but defines new goals, innovations, new partnerships, changes and impacts. They should be publicly reported and results could be benchmarked against contributions to society in terms of the MDGs

There are particular opportunities in this approach for partnerships between companies engaged in infrastructure such as water, solar and decentralised power, telecommunications, IT, financial services and transport, as well as companies in food, agri-products, building materials, fuels and basic consumer goods.

IBLF will be working with companies and agencies to identify good practices and promote comprehensive action by companies in using the framework as a business management and development tool and use of a B+DGs 'brand' as a symbol of intent. We also aim to facilitate country pilots in building business and development clusters and cross fertilisation between countries and pilots. We also aim to develop an international award scheme to recognise progress and champion companies and partnerships.

The widespread adoption of the B+DG Framework demands a number of conditions:

• Visionary business leadership and willingness to take risks with new business models.
• A sense of the market opportunity that can be grown rather than what exists.
• A greater culture of collaboration between business sector and between competitors that will lead to commitment to collective action.
• Willingness of NGO partners to collaborate and recognise the vital underpinning that markets provide for social development.
• Increasing public trust in business leaders.
• Smart intermediaries such as BCF and other business organisations and NGOs who can broker new models at the community level and in the challenge of business providing solutions.

The survival of the free market enterprise system will depend in the near term on whether it can adapt to the challenges of aligning competitive business models with the acute challenges of development all around us. There are fabulous market opportunities here for smart forward thinking companies and we believe our framework will help. We cannot delude ourselves that islands of growth and consumer boom in an ocean of poverty is sustainable without strategies to diffuse growth and build inclusive development models that are within the grasp of business. It demands bold visions and leadership and rewards for those who follow this course.

Business & Community Foundation India
Annual CSR Lecture
Tuesday 7th March 2006 New Delhi, India

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