order to achieve socially, economically and sector in

During the past decade the field ofcorporate social responsibility (CSR)has moved from the margins of thecorporate agenda to the mainstream.For most leading companies it hasadvanced beyond legal complianceand beyond philanthropy to addresscore business issues such as riskmanagement, innovation and valuecreation. It has created a globalnetwork of practitioners, consultantsand academics and resulted in newmarket mechanisms, regulations andvoluntary initiatives, plus a variety ofmanagement tools and guidelines.Issues related to corporate socialresponsibility have become familiarsubjects in the international businessmedia and conference circuit, andhave even been the subject of arecent U.S. Supreme Court Case.2

At the same time, CSR has becomethe focus of increasing criticism fromsome very different perspectives.Four of the most common critiquesare as follows:

First, there are those who continueto argue that the sole corporateresponsibility of business is tomake profits and obey the law,within a minimalist legalframework. They argue thatadhering to the principles of CSRraises costs and prices, increasesregulations and may actually reducesociety’s welfare rather then enhanceit.3 We would agree that profitabilityand basic legal compliance arecrucial foundations for responsiblebusiness. They are not sufficient,however, in today’s world where new

societal expectations are creatingreputation and litigation risks forcompanies that fail to demonstrateand account for their performanceagainst responsible businessprinciples and values. As Sir MarkMoody-Stuart, chairman of AngloAmerican and former Chairman ofShell has observed, “Without profits,no private company can sustainprinciples. Without principles, nocompany deserves profits.” 4

Second, there are those who arguethe case for comprehensive globalregulation of business behaviour.They base this on the rationale thatmany companies cannot be trustedto behave responsibly on a voluntarybasis, regardless of the values andprinciples they profess to have. Agroup of over 80 NGOs andacademics, for example, has calledon the UN for such regulation. Theyargue that, “Multinationalcorporations are too important fortheir conduct to be left to voluntaryand self-generated standards. A legalframework, including monitoring,must be developed to govern theirbehaviour on the world stage.”5

We would argue that the advocatesof such an approach have giveninsufficient thought to the practicalchallenges of implementing,monitoring and sanctioning a globalregulatory framework that aims tocover all CSR-related issues(economic, social, environmentaland ethical) in all countries, allindustry sectors and all majorcompanies. This is in addition to the

1. Nelson, J. Business as Partners inDevelopment: Building wealth forcountries, companies andcommunities, PWBLF incollaboration with the World Bankand UNDP, 1996. This model of corebusiness multipliers was developedfurther in Nelson, J. BuildingCompetitiveness and Communities:How world class companies arecreating shareholder value andsocietal value, PWBLF incollaboration with the World Bankand UNDP, 1998.

2. Nike v Kasky - a case dismissed by theU.S. Supreme Court in July 2003 ontechnical grounds which focused onthe freedom of speech of corporationswhen talking about public policyissues and their social andenvironmental performance.

3 For one useful critique see Misguidedvirtue: False notions of CorporateSocial Responsibility, by DavidHenderson. Institute of EconomicAffairs, London, 2001.

4. Shell Report Profits or Principles:Does there have to be a choice?,1998

5. Citizens Charter to the UN, inresponse to the launch of the GlobalCompact, CorpWatch website.

6. Schwab, K. Get Back to Business.Article in Newsweek International,May 5 2003.

7. Davies, R and Nelson, J. The BuckStops Where? Managing theBoundaries of Business Engagementin Global development Challenges.IBLF Policy Paper 2, January 2003.

8. Comments made by Lord Holme atmeeting hosted by IBLF and UNDPto discuss the contribution of businessto meeting the MillenniumDevelopment Goals, April 5th 2003.

9. Comments made by Bruce Klatsky atmeeting hosted by IBLF and WorldBank to discuss the boundaries ofbusiness in developing countries,January 22nd 2003.

10. Comments made by Phil Watts,Chairman of the Committee ofManaging Directors of the RoyalDutch/Shell Group, in a speech at theRoyal Institute of InternationalAffairs, London, July 5 2002.

11. Unilever Annual Review, 2003.

12. World Economic Forum GlobalCorporate Citizenship Initiative(www.weforum.org/)

13. This is a recognised accountingtechnique that has been promoted by

the Corporate Citizenship Company(www.corporatecitizenship.com)

14. Listening, learning, makingprogress. Unilever 2002 Social Reviewof 2001 data.

15. Commencement address delivered byLord Browne to Colorado School ofMines, May 9th 2003.

16. Nelson, J and Moberg, J. BuildingBridges: Opportunities andchallenges for responsible privatesector involvement in Iraq?sreconstruction. IBLF Policy Paper 3,June 2003.

17. Bughin, Jacques and Copeland,Thomas E. The virtuous cycle ofshareholder value creation. TheMcKinsey Quarterly, 1997

18. Pralahad, C.K. and Hart, Stuart, L.The Fortune at the Bottom of thePyramid. Strategy+Business, Issue 26,Reprint No. 02106

19. Logan, D The Business Response toHIV/Aids: Innovation andPartnership Global Business Councilon HIV/Aids and IBLF, 1997 andDaley, K, The Business Response toHIV/Aids: Impact and lessonslearned UNAIDS, Global BusinessCouncil on HIV/Aids and IBLF, 2000

20. Brew, P and House, F. The Businessof Enterprise: Meeting the challengeof economic development throughbusiness and communitypartnerships. IBLF, 2001.

21. Nelson, J and Prescott, D. Businessand the Millennium DevelopmentGoals: A framework for Action.IBLF in collaboration with UNDP,2003.

22. The Virtuous Circle: Electronicpayments and economic growth. Awhite paper prepared by VISAInternational and Global Insight,2003.

23. This draws from a frameworkdeveloped in Profits with Principals:Seven principles for building trustand competitiveness, by Ira Jacksonand Jane Nelson, Doubleday(forthcoming, 2004). Anotherforthcoming book written by IBLFstaff is Corporate SocialOpportunity, by Adrian Hodges andDavid Grayson, Greenleaf(forthcoming, 2004).

24. Business and economicdevelopment. AccountAbility,Business for Social Responsibility andBrody, Weiser Burns, June 2003

What can the private sector reallycontribute to development? Docompanies help to raise standards indeveloping countries? From the outsetof the IBLF’s existence in 1990, wehave focused our efforts on answeringthese and other questions byaddressing the core businesscontribution that companies make todevelopment. While recognising theimportant roles of philanthropy andcompliance, we have argued that thegreatest contribution that companiescan make to society, especially indeveloping countries, is throughresponsible, efficient and profitablemainstream investment that producesa variety of socio-economic multipliers.

In 1996, working with the World Bank and with

the United Nations Development Programme,

we identified eight of these ‘core business

multipliers’1. They have all too often been

overlooked and undervalued in the corporate

social responsibility debate. As the CSR debate

gains maturity we feel it is useful to revisit and

remind ourselves of the contribution that these

multipliers can make to spreading economic

opportunity and supporting sustainable

development. This is particularly important

given the growing emphasis on the costs and

benefits of globalisation and heightened

awareness on the need for local solutions.

The eight core business multipliers:

1. Generate investment and income

2. Produce safe products and services

3. Create jobs

4. Invest in human capital

5. Establish local business linkages

6. Spread international business standards

7. Support technology transfer

8. Build physical and institutional infrastructure

ECONOMIC MULTIPLIERSRevisiting the core responsibility and contributionof business to developmentby Jane Nelson, July 2003

© International Business Leaders Forum, July 2003

IBLF Policy Paper 2003, Number 4

For more information, please consult IBLF’swebsite: www.iblf.org

IBLF, 15 – 16 Cornwall Terrace, Regent’s Park,London, NW1 4QP, UK

Tel: + 44 (0)207 467 3667 Fax: +44 (0)207 467 3610 E-mail: [email protected]

Footnotes

The International Business Leaders Forum is anot for profit organisation, founded in 1990 byHRH The Prince of Wales and a group ofinternational CEOs, in response to the emergingsocial challenges of economic growth andchange in the global economy. The IBLF’smission is to promote international leadershipin responsible business practices, to benefitbusiness and society. It works strategicallywith business, civil society and the publicsector in transition and emerging economies inorder to achieve socially, economically andenvironmentally sustained development.

AcknowledgementsThis paper draws on ten years’ of the IBLF’s work.

Thanks to Nick Claridge and Joe Phelan for their

support in designing and producing this document.

fact that many developing countrygovernments have capacity problemsin implementing existingenvironmental, labour and humanrights conventions agreed at the levelof nation-states, let alone a moredetailed set of standards aimed atbusiness. A focus on building publicsector capacity to implement existinginternational agreements would seemthe best use of resources at present.

Having said this, there is clearly aneed to ‘level the playing field’ andensure that laggard companies areheld to a greater level ofaccountability on core ethical,corporate governance, labour,environmental and human rightsstandards. This calls not only forcapacity building, but also forincreased dialogue betweenrepresentative business organisations,government bodies and civil societyto negotiate the most appropriatebalance between regulatoryframeworks, fiscal incentives, marketmechanisms and voluntary businessinitiatives. Such dialogue should leadto interventions that influencecorporate behaviour for all majorcompanies, not only the leaders, butdo so in a manner that is most likelyto be efficient and effective. In somecases this may involve extraregulation, but not necessarily. Evenif legislation does ensue, companiesthat engage in its formulation standto benefit.

Third, there are a growing numberof business leaders, academics andothers who worry that too much isbeing expected of the privatesector in a period of massivecompetition, economic downturnand political uncertainty. KlausSchwab, President of the WorldEconomic Forum, spoke for many

when he argued in a May 2003Newsweek article, “Even before recentscandals, responsibilities that used tobe the purview of governments – likefighting poverty, guaranteeing publichealth and protecting the environment– have been handed over tocorporations, as if businesses werebottomless pits of money whose solefunction was to provide social benefitsto the world. Now may be the time tore-examine these assumptions, becausethe role of business has becomeconfusing. In this era of slowingeconomic-growth, we must re-embracethe wealth-enhancing, job-creating rolethat business plays in society. Andbusiness leaders must again take thelead, offering up an assertive, positivevision of their function in the world atlarge.” 6

We agree in certain circumstancesthat there is a danger of governmentsand other stakeholders expecting toomuch of business and/or failing toreciprocate in terms of their ownresponsibilities and accountability.Once again, this points to a growingneed for regular stakeholderdialogue, by both individualcompanies and industry bodies, todebate the appropriate boundaries ofcorporate responsibility vis a vis thatof governments and civil societyactors. The challenge of defining andmanaging such boundaries was thefocus of an earlier IBLF policybriefing, Number 2, January 2003. 7

A fourth and final critique arguesthat all too often CSR is positionedas an ‘add-on’ to a company’s corebusiness activities and economicdevelopment impact, rather thanrecognising these as central to whatCSR is all about. As Lord Holme,former Deputy Chair of BusinessAction for Sustainable Development

and an adviser to Rio Tinto observes,“We need to get better at measuringand communicating the contributionthat companies make to economicdevelopment.”8 This is a commentechoed by Bruce Klatsky, Chairmanand CEO of Phillips-Van Heusen,“We need to do a better job at raisingawareness of the development benefitsof successful, legal, well-governedprivate investment.” 9 We agree thatproducing goods and services in away that meets customer needs oraspirations and generates profits is acentral part of a company’s socialresponsibility in its own right. Ifdone in a manner that movesbeyond legal compliance to reflectinternational norms and standards inareas such as corporate governance,human rights, labour, theenvironment and bribery andcorruption, these core businessactivities and their economicmultipliers can make a majordifference to people’s lives and totackling global poverty. This policybriefing focuses on thatcontribution.

A quote from Sir PhillipWatts,Chairman of Shell, is a good place tostart in emphasising the contributionof a company’s core businessactivities. He points out, “Ourprimary impact is through ourbusiness. We also participate in whatmight be called ‘catalytic engagement’with others – for example through theWorld Business Council forSustainable Development, theInternational Chamber of Commerce,the Shell Foundation and the range ofcommunity programs carried outthroughout the world. To put thedistinction in money terms, we areresponsible for $20 billion invested inbusiness every year on behalf ofourselves and our partners, and $140

The eight “economic multipliers”outlined in this policy brief illustrateways in which profitable andresponsible businesses can contributeto development through the impactof their core business operations - inthe workplace, in the marketplaceand along the supply chain. Inoptimising the impacts of theseeconomic multipliers, companies cancreate both shareholder value-addedand societal value-added, which wedefine as the creation of widereconomic, social and environmentalvalue.

Four key strategies that companiescan employ in creating bothshareholder value-added and societalvalue-added are: compliance; charity;control of risks, costs and liabilities;and creation of new value.23 Thesestrategies are not mutually exclusive– in fact outstanding companies willexcel in all four, viewing them asbuilding blocks for performanceexcellence:

• Compliance – complying with thelaw and industry standards isfundamental, but not sufficient inmeeting or exceeding societalexpectations. At best, it willprotect the company’s ‘licence tooperate’ and its shareholder value.

• Charity – corporate philanthropyor social investment are alsobeneficial and can contributesocietal value-added, especially tolocal communities, but they areunlikely to have a major impact onadding to shareholder value-added,beyond their positive impact onemployee morale and motivationand some reputation andrelationship benefits. Nor are they

adequate in tackling thedevelopment challenges that existin most countries wheremultinational companies operate

• Control – controlling or managingthe company’s risks, costs,liabilities, and negative impacts isalso fundamental to the protectionand in some cases theenhancement of shareholder value.It is unlikely, however, to createmajor new value for societybeyond doing ‘no harm’ tostakeholders and minimizing acompany’s environmentalfootprint.

• Create New Value – the creationof new value through innovationin products, services, processes,markets, alliances and businessmodels has the greatest potentialfor delivering benefits to bothshareholders and society. It movescompanies from a mindset of ‘dono harm’ to ‘do positive good’ andfrom a framework of corporatesocial responsibility to corporatesocial opportunity.

Another useful analysis of howcompanies are managing theireconomic impact to benefit societyhas recently been produced byAccountAbility, Business for SocialResponsibility and Brody WeiserBurns.24 The World ResourcesInstitute Sustainable Enterprisesprogramme and the WBCSD’sSustainable Livelihoods initiative alsooffer useful models on the economicdevelopment role of the privatesector.

In conclusion, the private sector canmake a vital contribution todevelopment and many companiesare already doing so. Throughresponsibly managing their corebusiness activities and harnessingtheir core business competencies,these companies are moving beyondcompliance, risk management andphilanthropy to deliver innovative,competitive and profitable solutionsto development.

Governments, the media, academiaand civil society actors need to offermore recognition and support forsuch companies. At the same time,business leaders can play a crucialrole themselves. They can act asambassadors for values-drivenleadership by speaking out on therole of business in addressinginternational development andgovernance issues. They can alsomobilise their boards of directors,their managers and the young peoplewho are the next generation ofbusiness leaders to promoteresponsible business.

ECONOMIC MULTIPLIERS REVISITING THE CORE RESPONSIBILITY AND CONTRIBUTION OF BUSINESS TO DEVELOPMENT 112 ECONOMIC MULTIPLIERS REVISITING THE CORE RESPONSIBILITY AND CONTRIBUTION OF BUSINESS TO DEVELOPMENT

Conclusion

• Institutional infrastructure such asappropriate legal, financial andaccounting systems and standards,local stock exchanges and bankingcapacity, and local chambers ofcommerce, organisations ofemployers and other businessassociations and networks thathelp to shape market frameworksand support private enterprisedevelopment.

In the case of physical infrastructure,companies in sectors such as water,electricity, waste management,telecommunications, constructionand engineering, energy, mining,agri-business and manufacturing,clearly have a key role to play inproviding the capital, technologyand management expertise for thiscrucial building block ofdevelopment. Logistics andtransportation companies, such asDHL and UPS, also play a valuablerole in increasing the physialconnections between businesses andcountries. This can be especiallyimportant when other forms oftransport infrastructure areinadequate, or have been damagedby natural disasters or wars.

There is great debate on the mostappropriate roles of the public andprivate sector when it comes tophysical infrastructure that delivers‘public goods’ such as water, energyand housing. Water is a particularlysensitive issue. The United Nationsand the World Bank argue, however,that private capital and managementexpertise are essential, in partnershipwith government and civil society, ifthe world is going to meet itsMillennium Development target ofhalving, by 2015, the proportion ofpeople without access to safedrinking water. 21

In terms of institutionalinfrastructure, financial andprofessional service firms such asKPMG, PricewaterhouseCoopers,Accenture, Deloitte ToucheTohmatsu, Marsh and McLennan,McKinsey & Company, StandardChartered, Citigroup, MorganStanley and others can play aparticularly important role. They cansupport governments in themodernization of financialinstitutions and improve theeffectiveness and efficiency ofregulatory frameworks in areas suchas property rights, company andcompetition law, privatisation andmarket liberalization. In certain casesthey can help to train governmentofficials, build the capacity ofgovernment bodies and restructurefinancial and economic institutions.

Effective institutional infrastructureis important not only at a nationallevel, but also at an internationallevel. One example is globalelectronic payments. As VISAInternational argues in a recentpublication, “...the system of electronicpayments promotes economic growthby providing fundamental benefitssuch as a safe, sound and predictableinternational payments networkconnecting buyers and sellers; ever-increasing levels of security andconsumer empowerment; greatereconomic transparency; increasedeconomic stimulation; and widenedparticipation in the banking system.”22

The development of institutionalframeworks to trade and managegreenhouse gas emissions is anotherexample of institutional innovationswhere the private sector is playing animportant role. The Greenhouse GasProtocol, for example, is a coalitionof businesses, NGOs, and

government bodies, initiated by theWorld Resources Institute and theWorld Business Council forSustainable Development. It aims todevelop internationally acceptedaccounting and reporting standardson greenhouse gas emissions andprovide practical tools to helpcompanies manage their emissions.

The Global Reporting Initiative isanother innovative multi-stakeholdernetwork, that aims to developinternational reporting guidelinesand indicators for sustainabilityreporting. Its framework is nowbeing used formally and informallyby over 150 of the world’s leadingcompanies as they work towardsgreater transparency andaccountability on their economic,social and environmentalperformance.

A final example of ‘institutionalinfrastructure’ is the internationaltrade system. Some major companiesare taking a leadership role tosupport the Doha Trade Round andto advocate for increased access todeveloped country markets fordeveloping countries, especially inthe area of agricultural products.Senior executives in companies suchas Unilever, Nestlé and ChevronTexaco, for example, have spokenout publicly on the need for a reviewof agricultural subsidies in Europeand the United States.

million in donations. This level ofcatalytic engagement is not small but isdwarfed by the beneficial impact ofour day-to-day business.”10

This point is also emphasised byUnilever in their Annual Review of2002, “We regard the very business ofdoing business in a responsible andsustainable way as the core of ourcorporate social responsibility: sellingproducts that meet local consumers’needs, investing in productive capacity,spreading our technical know-how,working in partnerships through thevalue chain and in local communities,and making environmentalresponsibility a central businesspractice.” 11

This view is shared by a group ofover 40 chairmen and CEOs from18 industry sectors and withcompanies headquartered in 16countries. They stated in the GlobalCorporate Citizenship statementdeveloped by the World EconomicForum in partnership with the IBLF,“First and foremost, our companies’commitment to being global corporatecitizens is about the way we run ourown businesses.” 12

In the following sections we outlineeight core business multipliers. Ifmanaged in a way that minimisestheir negative impacts and maximisestheir positive impacts onstakeholders, these eight corebusiness multipliers can make anenormous contribution to buildingmore prosperous, equitable andpeaceful societies.

1Generate investment andincome

Companies can play a vital role toincrease capital investment and injectcash into local, regional and nationaleconomies. They can do this in thefollowing ways:

• Paying wages to local employees,taxes and other royalties to hostgovernments, timely payment tosuppliers, dividends to investors,interest to banks, and grants,donations or social venture capitalfunds to local non-profitorganisations or communitygroups.

• Reinvesting back in the localbusiness for future growth,research and development.

• Earning foreign exchange.• Investing in local operations and

transportation facilities.

The cash generated by a successfulbusiness and paid out to differentstakeholders can have a valuablemultiplier effect, especially withinlocal communities, but also morewidely at a national or regional level.

Working with the CorporateCitizenship Company13, severalcompanies have started to report onwhat they call their cash valueadded (CVA). These companiesinclude SABMiller, HSBC, Diageoand Unilever. This is a useful metricthat any company could adopt. Inthe words of Unilever, “Thiscalculates the wealth created inmonetary terms through the value thatour operations add to the rawmaterials and services we buy in,calculated as the difference betweenincome from customers and paymentsout to suppliers. The value created isthen available to be distributed toemployees, governments, providers ofcapital and local communities. Some isretained in the business or invested forfuture growth – that is, for the benefitof stakeholders in the future.” 14

We illustrate this metric below,drawing on the case of SABMiller,which was a pioneer in its use. Theactual allocation of cash value addedtends to vary depending on both theindustry sector and the countries ofoperation, with a higher percentagetending to go to governments inmost developing countries.


The eight core economic multipliers

Source: SABMiller Corporate Accountability Report, 2003

The eight core economic multipliers continued

Speaking to a group of universitystudents in the United States in May2003, BP’s Chief Executive LordBrowne, captured the wealthmultiplier as follows, “Companies doexist to make money – and there’snothing wrong with that. We createwealth for those who invest in us, wecreate jobs and income for our staff,and we create wealth for nations andlocal communities by developingresources. Though it isn’t a target inour planning, we are one of the largesttax payers in the world, and thosetaxes fund a great many otheractivities and public services. We’re alsoone of the largest single funders ofpensions in the world because incomepaid out through our dividends helpsto meet the needs of millions ofpensioners around the world. So weneed to make money …but we existfor the long-term.” 15

The transparency with whichcompanies declare their payments tohost governments and the manner inwhich governments then use thisrevenue has attracted growingattention through campaigns such asPublish What You Pay, initiated byGlobal Witness with support fromGeorge Soros. The BritishGovernment played a leadership rolein launching the ExtractiveIndustry Transparency Initiative(EITI) in September 2002, whichhas resulted in agreements betweenseveral major extractive sectorcompanies and developing countrygovernments to increase transparencyon what they pay and receiverespectively. Although still at an earlystage, it is likely that this initiativewill grow in terms of both thenumber of countries supporting itand its extension into other industrysectors, such as infrastructure. Interms of the oil industry, it could

offer an especially useful frameworkfor building trust in Iraq, as theindustry there opens up to foreigninvestment and privatisation (seeIBLF Policy Paper, Number 3, June2003) 16.

It is also likely that campaigninggroups and socially responsibleinvestment funds will start to payincreased attention to whatcompanies are paying in taxes, notonly in developing countries, butalso in the United States andEurope.

Another issue related to thegeneration of income that has beenthe focus of increased shareholderand media attention in the past twoyears, has been executivecompensation. Most notable hasbeen the growing backlash against:the increased gap between executivepackages and average worker pay;the debate on whether to expenseshare options; and concern aboutlarge amounts paid to executives incompanies that have not delivered interms of shareholder performance.

These are all issues that businessleaders are increasingly being calledon to address and explain their owncompany’s position on. In themajority of cases, however, the cashvalue added that is generated bysuccessful and profitable companiesmakes an important contribution tostakeholders and economicdevelopment. In their 1997McKinsey Quarterly article “TheVirtuous Cycle of Shareholder ValueCreation”, Jacques Bughin andThomas Copeland report that,“…we studied the performance of2,700 companies from 20 countriesover a ten-year period. We found thata focus on shareholder value boosts

productivity and liberates resourcesthat benefits stakeholders of all kindsin the long term…”17

Generating wealth through runningefficient and customer-responsivebusinesses, and then having atransparent and accountable processfor distributing this wealth amongshareholders and other stakeholders,including re-investment back in thecompany’s own development, is oneof the single most importantcontributions that any companymakes to society.

2Produce safe products andservices

All companies produce goods andservices either for end-use consumersor intermediary customers. Thequality, value, affordability, safetyand environmental impacts of theseproducts and services are centralcomponents of corporate socialresponsibility. Companies in a widerange of industry sectors have startedto undertake innovative and far-reaching actions in all or some of thefollowing areas:

• Understanding and managingimpacts along the full product life-cycle, from sourcing tomanufacturing, marketing,distribution, product end-use anddisposal;

• Investing in the quality, health,safety and environmentalcomponents of the product orservice;

• Adapting existing brands ordeveloping new brands that meetlocal needs, tastes and culturaldiversity;

The IBLF’s report “The Business ofEnterprise”, profiles examples fromover 50 companies around the worldthat are developing such linkagesand helping to create not only jobsand new skills, but also locally-owned, competitive enterprises thatoperate to sound quality standardsand in some cases other internationalstandards. 20

Companies that have played aleadership role in this area ofeconomic empowerment and smallenterprise development includeAnglo American, Coca-Cola,DaimlerChrysler, Ford Motor,Unilever, Nestlé, Citigroup, Diageo,Rio Tinto, BP, and Shell. Withsupport from the Ford Foundation,the IBLF is now working on aproject to analyse and promotecollective action on small enterprisedevelopment in Poland, Zambia,Vietnam and Indonesia.

6Spread international businessstandards

Multinational companies can harnesstheir global, national and local valuechains to spread internationallyaccepted standards in areas such as:

• Corporate governance and soundethical practices, includingframeworks to tackle bribery andcorruption;

• Quality management, operationalor process management systems;

• Health, safety, environment andproduct safety;

• Labour and human rights.

This can be done on an individualcompany basis, but also on acollective basis. The Global Compact

is one example focused on spreadingcorporate awareness of andcommitment to internationalbusiness standards in the areas of theenvironment, labour and humanrights. A growing number of IBLFcompanies are also engaged in sectorinitiatives that aim to spread goodpractices across specific industrysectors. One example is the US andUK Voluntary Guidelines onSecurity and Human Rights, whichinvolve US and UK mining andenergy companies, as well as NGOsand the UK and US governments,expanding soon to involve othercountries.

Other sector initiatives include: theFair Labour Association; the EthicalTrading Initiative; the Marine andForest Stewardship Councils; theSustainable Agriculture Initiative;and the Equator Principles signed bybanks active in project finance.

These and other initiatives illustratehow companies are starting to take amore pro-active role to spreadinternational good practice not onlyalong their individual value chains,but also collectively in their industrysector. The IBLF has played a role inseveral sector-led initiatives, offeringco-ordination services andfacilitating multi-stakeholderdialogue.

7Support technology transfer

Most companies have technologiesand technical skills that can beshared with and/or adapted to theneeds of host countries andcommunities. This can include:

• Locating research and developmentfacilities in host countries;

• Linking hardware (i.e. equipment,information technology andmaterials) to software (i.e. localtraining, skills development,managerial systems);

• Implementing technologies forcleaner and safer production andproduct distribution;

• Researching, carrying out duediligence and managing thepotential negative consequences ofnew technologies.

A number of IBLF companies haveestablished R&D facilities and majoroperations in developing countries.Others are transferring cleanerproduction technologies andprocesses to these countries, eitherdirectly through their ownsubsidiaries and supply chains or inpartnership with UN bodies such asUNEP, UNIDO and UNDP.

8Build physical and institutionalinfrastructure

Finally, large companies, operatingeither individually or on a collectivebasis and depending on the industryin question, can play a valuable rolein contributing to a nation’sinfrastructure. This can include bothphysical and institutionalinfrastructure, the lack of which areoften cited as major impediments toprivate sector investment, nationalprogress and development:

• Physical infrastructure such asplant and machinery, roads andother transportation systems,telecommunications, water andsanitation services, domestic andindustrial waste managementfacilities, and energy;



Coca-Cola and Unilever are twocompanies that have researched theirjob multipliers in selected emergingmarkets. In China, South Africa andparts of Central and Eastern Europe,for example, research carried out bythe Universities of Cambridge andSouth Carolina, found that betweensix and eight jobs were supportedalong the Coca-Cola system’s localvalue chain, for every direct jobcreated by the company. Research byUnilever in Indonesia results insimilar figures, showing that in 2001an estimated eight jobs weresupported along the company’ssupply and distribution chains, foreach person employed directly by thecompany.

Looking for ways to minimise thetrauma and other human costsassociated with corporaterestructuring or job losses is anotherkey issue for companies to considerin this area. Media stories of peoplefired by text message or in largeundignified conferences have donemuch to raise mistrust of the privatesector in recent years. While job cutsare sometimes unavoidable,especially in difficult economiccircumstances, policies can be put inplace to handle them withcompassion, sensitivity and practicalsupport. Accenture and CiscoSystems provide positive examples oftwo companies that have offeredtheir staff an opportunity to work oncommunity projects, on a lowersalary, during periods of economicdownturn. Such an approach canhelp to manage costs and headcountwhile offering creative alternatives toa full-time job. Other companiesoffer career guidance, counselling,funds for start-up businesses,support for job searches andretraining.

4Invest in human capital

Offering employees and businesspartners access to training,professional development andoccupational health services is afourth key contribution thatcompanies can make to society. It isone that can have a highly valuablemultiplier effect in developingeconomies, where skills shortagesand inadequate management oradministrative capacity, in both thepublic and private sectors, are keyconstraints to development.Companies can support humancapital development through:

• Training programmes foremployees in the workplace;

• Training and capacity building forjoint venture partners, localcontractors and suppliers andother relevant business partners;

• Implementing occupational healthand safety programmes foremployees and contractors;

• Tackling HIV/Aids, where relevant,in the workplace throughawareness, prevention, treatmentand care programmes;

• Investment in research andeducation initiatives in localuniversities and schools, aimed tosupport industry-specific needs, aswell as broader national economicdevelopment needs.

In recent years the challenge oftackling HIV/Aids in the workplacehas risen to prominence forcompanies operating in Africa, LatinAmerica and increasingly in India,Russia and China. Many of themember companies of the IBLF haveestablished innovative and far-reaching workplace programmes overthe past few years. Anglo American

played a pioneering role in being thefirst major company to agree toprovide anti-retroviral drugs free ofcharge to its employees who needthem. GlaxoSmithKline also played aleadership role within thepharmaceutical sector by being oneof the first companies to movebeyond philanthropy to implement amore integrated and mainstreambusiness strategy on access toHIV/Aids drugs. The IBLF hasprofiled other examples of goodpractice in its two reports onBusiness and HIV/Aids. 19

On a collective corporate basis, thework of the Global BusinessCoalition on HIV/Aids, which theIBLF worked closely with in its earlystages, plays an important advocacy,leadership and information-sharingrole. The Global Health Initiative ofthe World Economic Forum isanother useful source of goodpractice on partnerships.

5Establish local businesslinkages

A fifth contribution that largecompanies can make to developmentis to build local business linkagesalong the corporate value-chain,especially with medium, small andmicro-enterprises. This can beachieved through large companiesestablishing:

• Backward or upstreamrelationships such as sourcing ofraw materials and procurement ofother local inputs and services;

• Forward or downstreamrelationships such as productdistribution, delivery, servicing anddisposal activities.

• Ensuring affordability andimproved access in the case ofbasic or essential goods andservices such as water, housing,energy, food and beverage, basichousehold consumer goods,information technology, credit forsmall-scale and micro-enterprises,and essential medicines.

In terms of life-cycle assessment, thesector initiatives being undertakenby the World Business Council forSustainable Development have beenuseful in illustrating the differentrisks and opportunities that keyindustry sectors face along the entirelife-cycle of their products andservices. These have included thesustainable paper cycle study, themobility initiative, the cementinitiative, and the mining mineralsand sustainable developmentinitiative.

One of the most useful sustainabilitymetrics that has been developed byan individual company, is a measurebeing used by DuPont that tracksthe volume of materials used in theproduction of its products againstthe shareholder value created. Thisaims to help the company in its goalto deliver more value to consumersand shareholders with less resourcesor materials, thereby meetingcustomer’s needs with less of anenvironmental footprint. This metricis being enhanced to also considerthe number of people reached, asDuPont, among other companies,looks at ways to reach out to lowincome consumers.

A growing number of companies areresearching economically viablesolutions to deliver affordable, goodquality products to low-incomecommunities. This is especially

important in the area of essentialgoods and services such as water,energy and life-saving medicines, butalso offers potential in terms of safeand nutritious branded foods,beverages, and household andpersonal goods.

In their ground-breaking research onthe four billion people who live atthe bottom of the world’s economicpyramid on less than $1,500 peryear, C.K. Pralahad and Stuart Hart,argue that, “This is a time for MNCsto look at globalization through a newlens of inclusive capitalism. Forcompanies with the resources andpersistence to compete at the bottom ofthe world economic pyramid, theprospective rewards include growth,profits and incalculable contributionsto humankind. …Collectively, we haveonly begun to scratch the surface ofwhat is the biggest potential marketopportunity in the history ofcommerce.” 18 They estimate that thisgroup of people, who could swell tosix billion over the next 40 years,represents a multi-trillion dollarmarket if companies can developinnovative new business models, newtechnologies and new product andservice offers to reach these peopleon a profitable basis.

Another growing issue in producingand delivering safe products andservices is the health and nutritionimpacts of the food and beveragesector. As public health concernsabout obesity and its related diseaseshave grown in more affluentcountries and population groups,and concerns about hunger andmalnutrition persist in low-incomecountries and population groups,these companies have newopportunities and risks to tackle.Since 2002, the IBLF has been

hosting a series of dialogues withfood and beverage companies, thesporting industry, WHO and othersto address some of the challengesassociated with consumer nutritionand lifestyle. It has also beeninvolved in the work of the GlobalAlliance for Improved Nutrition(GAIN).

3Create jobs

Employment creation is anotherpotential benefit resulting fromprivate sector investment indeveloping economics and low-income communities. Companiescan support national and localemployment generation goals by:

• Creating direct jobs at all levels ofoperations and management forlocal employees, including womenand ethnic minorities whereverpossible;

• Supporting jobs along local andglobal supply and distributionchains;

• Aiming to minimise the economicand social costs associated withcorporate restructuring, down-sizing and other major change.


The quality, value, affordability,

safety and environmental impacts

of a company’s products and

services are central components

of its corporate social

responsibility.


+$$$= Value$= Vaalue+$$$$$$$$

+$$$= Value$= Vaalue+$$$$$$$$

Coca-Cola and Unilever are twocompanies that have researched theirjob multipliers in selected emergingmarkets. In China, South Africa andparts of Central and Eastern Europe,for example, research carried out bythe Universities of Cambridge andSouth Carolina, found that betweensix and eight jobs were supportedalong the Coca-Cola system’s localvalue chain, for every direct jobcreated by the company. Research byUnilever in Indonesia results insimilar figures, showing that in 2001an estimated eight jobs weresupported along the company’ssupply and distribution chains, foreach person employed directly by thecompany.

Looking for ways to minimise thetrauma and other human costsassociated with corporaterestructuring or job losses is anotherkey issue for companies to considerin this area. Media stories of peoplefired by text message or in largeundignified conferences have donemuch to raise mistrust of the privatesector in recent years. While job cutsare sometimes unavoidable,especially in difficult economiccircumstances, policies can be put inplace to handle them withcompassion, sensitivity and practicalsupport. Accenture and CiscoSystems provide positive examples oftwo companies that have offeredtheir staff an opportunity to work oncommunity projects, on a lowersalary, during periods of economicdownturn. Such an approach canhelp to manage costs and headcountwhile offering creative alternatives toa full-time job. Other companiesoffer career guidance, counselling,funds for start-up businesses,support for job searches andretraining.

4Invest in human capital

Offering employees and businesspartners access to training,professional development andoccupational health services is afourth key contribution thatcompanies can make to society. It isone that can have a highly valuablemultiplier effect in developingeconomies, where skills shortagesand inadequate management oradministrative capacity, in both thepublic and private sectors, are keyconstraints to development.Companies can support humancapital development through:

• Training programmes foremployees in the workplace;

• Training and capacity building forjoint venture partners, localcontractors and suppliers andother relevant business partners;

• Implementing occupational healthand safety programmes foremployees and contractors;

• Tackling HIV/Aids, where relevant,in the workplace throughawareness, prevention, treatmentand care programmes;

• Investment in research andeducation initiatives in localuniversities and schools, aimed tosupport industry-specific needs, aswell as broader national economicdevelopment needs.

In recent years the challenge oftackling HIV/Aids in the workplacehas risen to prominence forcompanies operating in Africa, LatinAmerica and increasingly in India,Russia and China. Many of themember companies of the IBLF haveestablished innovative and far-reaching workplace programmes overthe past few years. Anglo American

played a pioneering role in being thefirst major company to agree toprovide anti-retroviral drugs free ofcharge to its employees who needthem. GlaxoSmithKline also played aleadership role within thepharmaceutical sector by being oneof the first companies to movebeyond philanthropy to implement amore integrated and mainstreambusiness strategy on access toHIV/Aids drugs. The IBLF hasprofiled other examples of goodpractice in its two reports onBusiness and HIV/Aids. 19

On a collective corporate basis, thework of the Global BusinessCoalition on HIV/Aids, which theIBLF worked closely with in its earlystages, plays an important advocacy,leadership and information-sharingrole. The Global Health Initiative ofthe World Economic Forum isanother useful source of goodpractice on partnerships.

5Establish local businesslinkages

A fifth contribution that largecompanies can make to developmentis to build local business linkagesalong the corporate value-chain,especially with medium, small andmicro-enterprises. This can beachieved through large companiesestablishing:

• Backward or upstreamrelationships such as sourcing ofraw materials and procurement ofother local inputs and services;

• Forward or downstreamrelationships such as productdistribution, delivery, servicing anddisposal activities.

• Ensuring affordability andimproved access in the case ofbasic or essential goods andservices such as water, housing,energy, food and beverage, basichousehold consumer goods,information technology, credit forsmall-scale and micro-enterprises,and essential medicines.

In terms of life-cycle assessment, thesector initiatives being undertakenby the World Business Council forSustainable Development have beenuseful in illustrating the differentrisks and opportunities that keyindustry sectors face along the entirelife-cycle of their products andservices. These have included thesustainable paper cycle study, themobility initiative, the cementinitiative, and the mining mineralsand sustainable developmentinitiative.

One of the most useful sustainabilitymetrics that has been developed byan individual company, is a measurebeing used by DuPont that tracksthe volume of materials used in theproduction of its products againstthe shareholder value created. Thisaims to help the company in its goalto deliver more value to consumersand shareholders with less resourcesor materials, thereby meetingcustomer’s needs with less of anenvironmental footprint. This metricis being enhanced to also considerthe number of people reached, asDuPont, among other companies,looks at ways to reach out to lowincome consumers.

A growing number of companies areresearching economically viablesolutions to deliver affordable, goodquality products to low-incomecommunities. This is especially

important in the area of essentialgoods and services such as water,energy and life-saving medicines, butalso offers potential in terms of safeand nutritious branded foods,beverages, and household andpersonal goods.

In their ground-breaking research onthe four billion people who live atthe bottom of the world’s economicpyramid on less than $1,500 peryear, C.K. Pralahad and Stuart Hart,argue that, “This is a time for MNCsto look at globalization through a newlens of inclusive capitalism. Forcompanies with the resources andpersistence to compete at the bottom ofthe world economic pyramid, theprospective rewards include growth,profits and incalculable contributionsto humankind. …Collectively, we haveonly begun to scratch the surface ofwhat is the biggest potential marketopportunity in the history ofcommerce.” 18 They estimate that thisgroup of people, who could swell tosix billion over the next 40 years,represents a multi-trillion dollarmarket if companies can developinnovative new business models, newtechnologies and new product andservice offers to reach these peopleon a profitable basis.

Another growing issue in producingand delivering safe products andservices is the health and nutritionimpacts of the food and beveragesector. As public health concernsabout obesity and its related diseaseshave grown in more affluentcountries and population groups,and concerns about hunger andmalnutrition persist in low-incomecountries and population groups,these companies have newopportunities and risks to tackle.Since 2002, the IBLF has been

hosting a series of dialogues withfood and beverage companies, thesporting industry, WHO and othersto address some of the challengesassociated with consumer nutritionand lifestyle. It has also beeninvolved in the work of the GlobalAlliance for Improved Nutrition(GAIN).

3Create jobs

Employment creation is anotherpotential benefit resulting fromprivate sector investment indeveloping economics and low-income communities. Companiescan support national and localemployment generation goals by:

• Creating direct jobs at all levels ofoperations and management forlocal employees, including womenand ethnic minorities whereverpossible;

• Supporting jobs along local andglobal supply and distributionchains;

• Aiming to minimise the economicand social costs associated withcorporate restructuring, down-sizing and other major change.


The quality, value, affordability,

safety and environmental impacts

of a company’s products and

services are central components

of its corporate social

responsibility.


Speaking to a group of universitystudents in the United States in May2003, BP’s Chief Executive LordBrowne, captured the wealthmultiplier as follows, “Companies doexist to make money – and there’snothing wrong with that. We createwealth for those who invest in us, wecreate jobs and income for our staff,and we create wealth for nations andlocal communities by developingresources. Though it isn’t a target inour planning, we are one of the largesttax payers in the world, and thosetaxes fund a great many otheractivities and public services. We’re alsoone of the largest single funders ofpensions in the world because incomepaid out through our dividends helpsto meet the needs of millions ofpensioners around the world. So weneed to make money …but we existfor the long-term.” 15

The transparency with whichcompanies declare their payments tohost governments and the manner inwhich governments then use thisrevenue has attracted growingattention through campaigns such asPublish What You Pay, initiated byGlobal Witness with support fromGeorge Soros. The BritishGovernment played a leadership rolein launching the ExtractiveIndustry Transparency Initiative(EITI) in September 2002, whichhas resulted in agreements betweenseveral major extractive sectorcompanies and developing countrygovernments to increase transparencyon what they pay and receiverespectively. Although still at an earlystage, it is likely that this initiativewill grow in terms of both thenumber of countries supporting itand its extension into other industrysectors, such as infrastructure. Interms of the oil industry, it could

offer an especially useful frameworkfor building trust in Iraq, as theindustry there opens up to foreigninvestment and privatisation (seeIBLF Policy Paper, Number 3, June2003) 16.

It is also likely that campaigninggroups and socially responsibleinvestment funds will start to payincreased attention to whatcompanies are paying in taxes, notonly in developing countries, butalso in the United States andEurope.

Another issue related to thegeneration of income that has beenthe focus of increased shareholderand media attention in the past twoyears, has been executivecompensation. Most notable hasbeen the growing backlash against:the increased gap between executivepackages and average worker pay;the debate on whether to expenseshare options; and concern aboutlarge amounts paid to executives incompanies that have not delivered interms of shareholder performance.

These are all issues that businessleaders are increasingly being calledon to address and explain their owncompany’s position on. In themajority of cases, however, the cashvalue added that is generated bysuccessful and profitable companiesmakes an important contribution tostakeholders and economicdevelopment. In their 1997McKinsey Quarterly article “TheVirtuous Cycle of Shareholder ValueCreation”, Jacques Bughin andThomas Copeland report that,“…we studied the performance of2,700 companies from 20 countriesover a ten-year period. We found thata focus on shareholder value boosts

productivity and liberates resourcesthat benefits stakeholders of all kindsin the long term…”17

Generating wealth through runningefficient and customer-responsivebusinesses, and then having atransparent and accountable processfor distributing this wealth amongshareholders and other stakeholders,including re-investment back in thecompany’s own development, is oneof the single most importantcontributions that any companymakes to society.

2Produce safe products andservices

All companies produce goods andservices either for end-use consumersor intermediary customers. Thequality, value, affordability, safetyand environmental impacts of theseproducts and services are centralcomponents of corporate socialresponsibility. Companies in a widerange of industry sectors have startedto undertake innovative and far-reaching actions in all or some of thefollowing areas:

• Understanding and managingimpacts along the full product life-cycle, from sourcing tomanufacturing, marketing,distribution, product end-use anddisposal;

• Investing in the quality, health,safety and environmentalcomponents of the product orservice;

• Adapting existing brands ordeveloping new brands that meetlocal needs, tastes and culturaldiversity;

The IBLF’s report “The Business ofEnterprise”, profiles examples fromover 50 companies around the worldthat are developing such linkagesand helping to create not only jobsand new skills, but also locally-owned, competitive enterprises thatoperate to sound quality standardsand in some cases other internationalstandards. 20

Companies that have played aleadership role in this area ofeconomic empowerment and smallenterprise development includeAnglo American, Coca-Cola,DaimlerChrysler, Ford Motor,Unilever, Nestlé, Citigroup, Diageo,Rio Tinto, BP, and Shell. Withsupport from the Ford Foundation,the IBLF is now working on aproject to analyse and promotecollective action on small enterprisedevelopment in Poland, Zambia,Vietnam and Indonesia.

6Spread international businessstandards

Multinational companies can harnesstheir global, national and local valuechains to spread internationallyaccepted standards in areas such as:

• Corporate governance and soundethical practices, includingframeworks to tackle bribery andcorruption;

• Quality management, operationalor process management systems;

• Health, safety, environment andproduct safety;

• Labour and human rights.

This can be done on an individualcompany basis, but also on acollective basis. The Global Compact

is one example focused on spreadingcorporate awareness of andcommitment to internationalbusiness standards in the areas of theenvironment, labour and humanrights. A growing number of IBLFcompanies are also engaged in sectorinitiatives that aim to spread goodpractices across specific industrysectors. One example is the US andUK Voluntary Guidelines onSecurity and Human Rights, whichinvolve US and UK mining andenergy companies, as well as NGOsand the UK and US governments,expanding soon to involve othercountries.

Other sector initiatives include: theFair Labour Association; the EthicalTrading Initiative; the Marine andForest Stewardship Councils; theSustainable Agriculture Initiative;and the Equator Principles signed bybanks active in project finance.

These and other initiatives illustratehow companies are starting to take amore pro-active role to spreadinternational good practice not onlyalong their individual value chains,but also collectively in their industrysector. The IBLF has played a role inseveral sector-led initiatives, offeringco-ordination services andfacilitating multi-stakeholderdialogue.

7Support technology transfer

Most companies have technologiesand technical skills that can beshared with and/or adapted to theneeds of host countries andcommunities. This can include:

• Locating research and developmentfacilities in host countries;

• Linking hardware (i.e. equipment,information technology andmaterials) to software (i.e. localtraining, skills development,managerial systems);

• Implementing technologies forcleaner and safer production andproduct distribution;

• Researching, carrying out duediligence and managing thepotential negative consequences ofnew technologies.

A number of IBLF companies haveestablished R&D facilities and majoroperations in developing countries.Others are transferring cleanerproduction technologies andprocesses to these countries, eitherdirectly through their ownsubsidiaries and supply chains or inpartnership with UN bodies such asUNEP, UNIDO and UNDP.

8Build physical and institutionalinfrastructure

Finally, large companies, operatingeither individually or on a collectivebasis and depending on the industryin question, can play a valuable rolein contributing to a nation’sinfrastructure. This can include bothphysical and institutionalinfrastructure, the lack of which areoften cited as major impediments toprivate sector investment, nationalprogress and development:

• Physical infrastructure such asplant and machinery, roads andother transportation systems,telecommunications, water andsanitation services, domestic andindustrial waste managementfacilities, and energy;



• Institutional infrastructure such asappropriate legal, financial andaccounting systems and standards,local stock exchanges and bankingcapacity, and local chambers ofcommerce, organisations ofemployers and other businessassociations and networks thathelp to shape market frameworksand support private enterprisedevelopment.

In the case of physical infrastructure,companies in sectors such as water,electricity, waste management,telecommunications, constructionand engineering, energy, mining,agri-business and manufacturing,clearly have a key role to play inproviding the capital, technologyand management expertise for thiscrucial building block ofdevelopment. Logistics andtransportation companies, such asDHL and UPS, also play a valuablerole in increasing the physialconnections between businesses andcountries. This can be especiallyimportant when other forms oftransport infrastructure areinadequate, or have been damagedby natural disasters or wars.

There is great debate on the mostappropriate roles of the public andprivate sector when it comes tophysical infrastructure that delivers‘public goods’ such as water, energyand housing. Water is a particularlysensitive issue. The United Nationsand the World Bank argue, however,that private capital and managementexpertise are essential, in partnershipwith government and civil society, ifthe world is going to meet itsMillennium Development target ofhalving, by 2015, the proportion ofpeople without access to safedrinking water. 21

In terms of institutionalinfrastructure, financial andprofessional service firms such asKPMG, PricewaterhouseCoopers,Accenture, Deloitte ToucheTohmatsu, Marsh and McLennan,McKinsey & Company, StandardChartered, Citigroup, MorganStanley and others can play aparticularly important role. They cansupport governments in themodernization of financialinstitutions and improve theeffectiveness and efficiency ofregulatory frameworks in areas suchas property rights, company andcompetition law, privatisation andmarket liberalization. In certain casesthey can help to train governmentofficials, build the capacity ofgovernment bodies and restructurefinancial and economic institutions.

Effective institutional infrastructureis important not only at a nationallevel, but also at an internationallevel. One example is globalelectronic payments. As VISAInternational argues in a recentpublication, “...the system of electronicpayments promotes economic growthby providing fundamental benefitssuch as a safe, sound and predictableinternational payments networkconnecting buyers and sellers; ever-increasing levels of security andconsumer empowerment; greatereconomic transparency; increasedeconomic stimulation; and widenedparticipation in the banking system.”22

The development of institutionalframeworks to trade and managegreenhouse gas emissions is anotherexample of institutional innovationswhere the private sector is playing animportant role. The Greenhouse GasProtocol, for example, is a coalitionof businesses, NGOs, and

government bodies, initiated by theWorld Resources Institute and theWorld Business Council forSustainable Development. It aims todevelop internationally acceptedaccounting and reporting standardson greenhouse gas emissions andprovide practical tools to helpcompanies manage their emissions.

The Global Reporting Initiative isanother innovative multi-stakeholdernetwork, that aims to developinternational reporting guidelinesand indicators for sustainabilityreporting. Its framework is nowbeing used formally and informallyby over 150 of the world’s leadingcompanies as they work towardsgreater transparency andaccountability on their economic,social and environmentalperformance.

A final example of ‘institutionalinfrastructure’ is the internationaltrade system. Some major companiesare taking a leadership role tosupport the Doha Trade Round andto advocate for increased access todeveloped country markets fordeveloping countries, especially inthe area of agricultural products.Senior executives in companies suchas Unilever, Nestlé and ChevronTexaco, for example, have spokenout publicly on the need for a reviewof agricultural subsidies in Europeand the United States.

million in donations. This level ofcatalytic engagement is not small but isdwarfed by the beneficial impact ofour day-to-day business.”10

This point is also emphasised byUnilever in their Annual Review of2002, “We regard the very business ofdoing business in a responsible andsustainable way as the core of ourcorporate social responsibility: sellingproducts that meet local consumers’needs, investing in productive capacity,spreading our technical know-how,working in partnerships through thevalue chain and in local communities,and making environmentalresponsibility a central businesspractice.” 11

This view is shared by a group ofover 40 chairmen and CEOs from18 industry sectors and withcompanies headquartered in 16countries. They stated in the GlobalCorporate Citizenship statementdeveloped by the World EconomicForum in partnership with the IBLF,“First and foremost, our companies’commitment to being global corporatecitizens is about the way we run ourown businesses.” 12

In the following sections we outlineeight core business multipliers. Ifmanaged in a way that minimisestheir negative impacts and maximisestheir positive impacts onstakeholders, these eight corebusiness multipliers can make anenormous contribution to buildingmore prosperous, equitable andpeaceful societies.

1Generate investment andincome

Companies can play a vital role toincrease capital investment and injectcash into local, regional and nationaleconomies. They can do this in thefollowing ways:

• Paying wages to local employees,taxes and other royalties to hostgovernments, timely payment tosuppliers, dividends to investors,interest to banks, and grants,donations or social venture capitalfunds to local non-profitorganisations or communitygroups.

• Reinvesting back in the localbusiness for future growth,research and development.

• Earning foreign exchange.• Investing in local operations and

transportation facilities.

The cash generated by a successfulbusiness and paid out to differentstakeholders can have a valuablemultiplier effect, especially withinlocal communities, but also morewidely at a national or regional level.

Working with the CorporateCitizenship Company13, severalcompanies have started to report onwhat they call their cash valueadded (CVA). These companiesinclude SABMiller, HSBC, Diageoand Unilever. This is a useful metricthat any company could adopt. Inthe words of Unilever, “Thiscalculates the wealth created inmonetary terms through the value thatour operations add to the rawmaterials and services we buy in,calculated as the difference betweenincome from customers and paymentsout to suppliers. The value created isthen available to be distributed toemployees, governments, providers ofcapital and local communities. Some isretained in the business or invested forfuture growth – that is, for the benefitof stakeholders in the future.” 14

We illustrate this metric below,drawing on the case of SABMiller,which was a pioneer in its use. Theactual allocation of cash value addedtends to vary depending on both theindustry sector and the countries ofoperation, with a higher percentagetending to go to governments inmost developing countries.


The eight core economic multipliers

Source: SABMiller Corporate Accountability Report, 2003


fact that many developing countrygovernments have capacity problemsin implementing existingenvironmental, labour and humanrights conventions agreed at the levelof nation-states, let alone a moredetailed set of standards aimed atbusiness. A focus on building publicsector capacity to implement existinginternational agreements would seemthe best use of resources at present.

Having said this, there is clearly aneed to ‘level the playing field’ andensure that laggard companies areheld to a greater level ofaccountability on core ethical,corporate governance, labour,environmental and human rightsstandards. This calls not only forcapacity building, but also forincreased dialogue betweenrepresentative business organisations,government bodies and civil societyto negotiate the most appropriatebalance between regulatoryframeworks, fiscal incentives, marketmechanisms and voluntary businessinitiatives. Such dialogue should leadto interventions that influencecorporate behaviour for all majorcompanies, not only the leaders, butdo so in a manner that is most likelyto be efficient and effective. In somecases this may involve extraregulation, but not necessarily. Evenif legislation does ensue, companiesthat engage in its formulation standto benefit.

Third, there are a growing numberof business leaders, academics andothers who worry that too much isbeing expected of the privatesector in a period of massivecompetition, economic downturnand political uncertainty. KlausSchwab, President of the WorldEconomic Forum, spoke for many

when he argued in a May 2003Newsweek article, “Even before recentscandals, responsibilities that used tobe the purview of governments – likefighting poverty, guaranteeing publichealth and protecting the environment– have been handed over tocorporations, as if businesses werebottomless pits of money whose solefunction was to provide social benefitsto the world. Now may be the time tore-examine these assumptions, becausethe role of business has becomeconfusing. In this era of slowingeconomic-growth, we must re-embracethe wealth-enhancing, job-creating rolethat business plays in society. Andbusiness leaders must again take thelead, offering up an assertive, positivevision of their function in the world atlarge.” 6

We agree in certain circumstancesthat there is a danger of governmentsand other stakeholders expecting toomuch of business and/or failing toreciprocate in terms of their ownresponsibilities and accountability.Once again, this points to a growingneed for regular stakeholderdialogue, by both individualcompanies and industry bodies, todebate the appropriate boundaries ofcorporate responsibility vis a vis thatof governments and civil societyactors. The challenge of defining andmanaging such boundaries was thefocus of an earlier IBLF policybriefing, Number 2, January 2003. 7

A fourth and final critique arguesthat all too often CSR is positionedas an ‘add-on’ to a company’s corebusiness activities and economicdevelopment impact, rather thanrecognising these as central to whatCSR is all about. As Lord Holme,former Deputy Chair of BusinessAction for Sustainable Development

and an adviser to Rio Tinto observes,“We need to get better at measuringand communicating the contributionthat companies make to economicdevelopment.”8 This is a commentechoed by Bruce Klatsky, Chairmanand CEO of Phillips-Van Heusen,“We need to do a better job at raisingawareness of the development benefitsof successful, legal, well-governedprivate investment.” 9 We agree thatproducing goods and services in away that meets customer needs oraspirations and generates profits is acentral part of a company’s socialresponsibility in its own right. Ifdone in a manner that movesbeyond legal compliance to reflectinternational norms and standards inareas such as corporate governance,human rights, labour, theenvironment and bribery andcorruption, these core businessactivities and their economicmultipliers can make a majordifference to people’s lives and totackling global poverty. This policybriefing focuses on thatcontribution.

A quote from Sir PhillipWatts,Chairman of Shell, is a good place tostart in emphasising the contributionof a company’s core businessactivities. He points out, “Ourprimary impact is through ourbusiness. We also participate in whatmight be called ‘catalytic engagement’with others – for example through theWorld Business Council forSustainable Development, theInternational Chamber of Commerce,the Shell Foundation and the range ofcommunity programs carried outthroughout the world. To put thedistinction in money terms, we areresponsible for $20 billion invested inbusiness every year on behalf ofourselves and our partners, and $140

The eight “economic multipliers”outlined in this policy brief illustrateways in which profitable andresponsible businesses can contributeto development through the impactof their core business operations - inthe workplace, in the marketplaceand along the supply chain. Inoptimising the impacts of theseeconomic multipliers, companies cancreate both shareholder value-addedand societal value-added, which wedefine as the creation of widereconomic, social and environmentalvalue.

Four key strategies that companiescan employ in creating bothshareholder value-added and societalvalue-added are: compliance; charity;control of risks, costs and liabilities;and creation of new value.23 Thesestrategies are not mutually exclusive– in fact outstanding companies willexcel in all four, viewing them asbuilding blocks for performanceexcellence:

• Compliance – complying with thelaw and industry standards isfundamental, but not sufficient inmeeting or exceeding societalexpectations. At best, it willprotect the company’s ‘licence tooperate’ and its shareholder value.

• Charity – corporate philanthropyor social investment are alsobeneficial and can contributesocietal value-added, especially tolocal communities, but they areunlikely to have a major impact onadding to shareholder value-added,beyond their positive impact onemployee morale and motivationand some reputation andrelationship benefits. Nor are they

adequate in tackling thedevelopment challenges that existin most countries wheremultinational companies operate

• Control – controlling or managingthe company’s risks, costs,liabilities, and negative impacts isalso fundamental to the protectionand in some cases theenhancement of shareholder value.It is unlikely, however, to createmajor new value for societybeyond doing ‘no harm’ tostakeholders and minimizing acompany’s environmentalfootprint.

• Create New Value – the creationof new value through innovationin products, services, processes,markets, alliances and businessmodels has the greatest potentialfor delivering benefits to bothshareholders and society. It movescompanies from a mindset of ‘dono harm’ to ‘do positive good’ andfrom a framework of corporatesocial responsibility to corporatesocial opportunity.

Another useful analysis of howcompanies are managing theireconomic impact to benefit societyhas recently been produced byAccountAbility, Business for SocialResponsibility and Brody WeiserBurns.24 The World ResourcesInstitute Sustainable Enterprisesprogramme and the WBCSD’sSustainable Livelihoods initiative alsooffer useful models on the economicdevelopment role of the privatesector.

In conclusion, the private sector canmake a vital contribution todevelopment and many companiesare already doing so. Throughresponsibly managing their corebusiness activities and harnessingtheir core business competencies,these companies are moving beyondcompliance, risk management andphilanthropy to deliver innovative,competitive and profitable solutionsto development.

Governments, the media, academiaand civil society actors need to offermore recognition and support forsuch companies. At the same time,business leaders can play a crucialrole themselves. They can act asambassadors for values-drivenleadership by speaking out on therole of business in addressinginternational development andgovernance issues. They can alsomobilise their boards of directors,their managers and the young peoplewho are the next generation ofbusiness leaders to promoteresponsible business.


Conclusion

During the past decade the field ofcorporate social responsibility (CSR)has moved from the margins of thecorporate agenda to the mainstream.For most leading companies it hasadvanced beyond legal complianceand beyond philanthropy to addresscore business issues such as riskmanagement, innovation and valuecreation. It has created a globalnetwork of practitioners, consultantsand academics and resulted in newmarket mechanisms, regulations andvoluntary initiatives, plus a variety ofmanagement tools and guidelines.Issues related to corporate socialresponsibility have become familiarsubjects in the international businessmedia and conference circuit, andhave even been the subject of arecent U.S. Supreme Court Case.2

At the same time, CSR has becomethe focus of increasing criticism fromsome very different perspectives.Four of the most common critiquesare as follows:

First, there are those who continueto argue that the sole corporateresponsibility of business is tomake profits and obey the law,within a minimalist legalframework. They argue thatadhering to the principles of CSRraises costs and prices, increasesregulations and may actually reducesociety’s welfare rather then enhanceit.3 We would agree that profitabilityand basic legal compliance arecrucial foundations for responsiblebusiness. They are not sufficient,however, in today’s world where new

societal expectations are creatingreputation and litigation risks forcompanies that fail to demonstrateand account for their performanceagainst responsible businessprinciples and values. As Sir MarkMoody-Stuart, chairman of AngloAmerican and former Chairman ofShell has observed, “Without profits,no private company can sustainprinciples. Without principles, nocompany deserves profits.” 4

Second, there are those who arguethe case for comprehensive globalregulation of business behaviour.They base this on the rationale thatmany companies cannot be trustedto behave responsibly on a voluntarybasis, regardless of the values andprinciples they profess to have. Agroup of over 80 NGOs andacademics, for example, has calledon the UN for such regulation. Theyargue that, “Multinationalcorporations are too important fortheir conduct to be left to voluntaryand self-generated standards. A legalframework, including monitoring,must be developed to govern theirbehaviour on the world stage.”5

We would argue that the advocatesof such an approach have giveninsufficient thought to the practicalchallenges of implementing,monitoring and sanctioning a globalregulatory framework that aims tocover all CSR-related issues(economic, social, environmentaland ethical) in all countries, allindustry sectors and all majorcompanies. This is in addition to the

1. Nelson, J. Business as Partners inDevelopment: Building wealth forcountries, companies andcommunities, PWBLF incollaboration with the World Bankand UNDP, 1996. This model of corebusiness multipliers was developedfurther in Nelson, J. BuildingCompetitiveness and Communities:How world class companies arecreating shareholder value andsocietal value, PWBLF incollaboration with the World Bankand UNDP, 1998.

2. Nike v Kasky - a case dismissed by theU.S. Supreme Court in July 2003 ontechnical grounds which focused onthe freedom of speech of corporationswhen talking about public policyissues and their social andenvironmental performance.

3 For one useful critique see Misguidedvirtue: False notions of CorporateSocial Responsibility, by DavidHenderson. Institute of EconomicAffairs, London, 2001.

4. Shell Report Profits or Principles:Does there have to be a choice?,1998

5. Citizens Charter to the UN, inresponse to the launch of the GlobalCompact, CorpWatch website.

6. Schwab, K. Get Back to Business.Article in Newsweek International,May 5 2003.

7. Davies, R and Nelson, J. The BuckStops Where? Managing theBoundaries of Business Engagementin Global development Challenges.IBLF Policy Paper 2, January 2003.

8. Comments made by Lord Holme atmeeting hosted by IBLF and UNDPto discuss the contribution of businessto meeting the MillenniumDevelopment Goals, April 5th 2003.

9. Comments made by Bruce Klatsky atmeeting hosted by IBLF and WorldBank to discuss the boundaries ofbusiness in developing countries,January 22nd 2003.

10. Comments made by Phil Watts,Chairman of the Committee ofManaging Directors of the RoyalDutch/Shell Group, in a speech at theRoyal Institute of InternationalAffairs, London, July 5 2002.

11. Unilever Annual Review, 2003.

12. World Economic Forum GlobalCorporate Citizenship Initiative(www.weforum.org/)

13. This is a recognised accountingtechnique that has been promoted by

the Corporate Citizenship Company(www.corporatecitizenship.com)

14. Listening, learning, makingprogress. Unilever 2002 Social Reviewof 2001 data.

15. Commencement address delivered byLord Browne to Colorado School ofMines, May 9th 2003.

16. Nelson, J and Moberg, J. BuildingBridges: Opportunities andchallenges for responsible privatesector involvement in Iraq?sreconstruction. IBLF Policy Paper 3,June 2003.

17. Bughin, Jacques and Copeland,Thomas E. The virtuous cycle ofshareholder value creation. TheMcKinsey Quarterly, 1997

18. Pralahad, C.K. and Hart, Stuart, L.The Fortune at the Bottom of thePyramid. Strategy+Business, Issue 26,Reprint No. 02106

19. Logan, D The Business Response toHIV/Aids: Innovation andPartnership Global Business Councilon HIV/Aids and IBLF, 1997 andDaley, K, The Business Response toHIV/Aids: Impact and lessonslearned UNAIDS, Global BusinessCouncil on HIV/Aids and IBLF, 2000

20. Brew, P and House, F. The Businessof Enterprise: Meeting the challengeof economic development throughbusiness and communitypartnerships. IBLF, 2001.

21. Nelson, J and Prescott, D. Businessand the Millennium DevelopmentGoals: A framework for Action.IBLF in collaboration with UNDP,2003.

22. The Virtuous Circle: Electronicpayments and economic growth. Awhite paper prepared by VISAInternational and Global Insight,2003.

23. This draws from a frameworkdeveloped in Profits with Principals:Seven principles for building trustand competitiveness, by Ira Jacksonand Jane Nelson, Doubleday(forthcoming, 2004). Anotherforthcoming book written by IBLFstaff is Corporate SocialOpportunity, by Adrian Hodges andDavid Grayson, Greenleaf(forthcoming, 2004).

24. Business and economicdevelopment. AccountAbility,Business for Social Responsibility andBrody, Weiser Burns, June 2003

What can the private sector reallycontribute to development? Docompanies help to raise standards indeveloping countries? From the outsetof the IBLF’s existence in 1990, wehave focused our efforts on answeringthese and other questions byaddressing the core businesscontribution that companies make todevelopment. While recognising theimportant roles of philanthropy andcompliance, we have argued that thegreatest contribution that companiescan make to society, especially indeveloping countries, is throughresponsible, efficient and profitablemainstream investment that producesa variety of socio-economic multipliers.

In 1996, working with the World Bank and with

the United Nations Development Programme,

we identified eight of these ‘core business

multipliers’1. They have all too often been

overlooked and undervalued in the corporate

social responsibility debate. As the CSR debate

gains maturity we feel it is useful to revisit and

remind ourselves of the contribution that these

multipliers can make to spreading economic

opportunity and supporting sustainable

development. This is particularly important

given the growing emphasis on the costs and

benefits of globalisation and heightened

awareness on the need for local solutions.

The eight core business multipliers:

1. Generate investment and income

2. Produce safe products and services

3. Create jobs

4. Invest in human capital

5. Establish local business linkages

6. Spread international business standards

7. Support technology transfer

8. Build physical and institutional infrastructure

ECONOMIC MULTIPLIERSRevisiting the core responsibility and contributionof business to developmentby Jane Nelson, July 2003

© International Business Leaders Forum, July 2003

IBLF Policy Paper 2003, Number 4

For more information, please consult IBLF’swebsite: www.iblf.org

IBLF, 15 – 16 Cornwall Terrace, Regent’s Park,London, NW1 4QP, UK

Tel: + 44 (0)207 467 3667 Fax: +44 (0)207 467 3610 E-mail: [email protected]

Footnotes

The International Business Leaders Forum is anot for profit organisation, founded in 1990 byHRH The Prince of Wales and a group ofinternational CEOs, in response to the emergingsocial challenges of economic growth andchange in the global economy. The IBLF’smission is to promote international leadershipin responsible business practices, to benefitbusiness and society. It works strategicallywith business, civil society and the publicsector in transition and emerging economies inorder to achieve socially, economically andenvironmentally sustained development.

AcknowledgementsThis paper draws on ten years’ of the IBLF’s work.

Thanks to Nick Claridge and Joe Phelan for their

support in designing and producing this document.

Documents

order to achieve socially, economically and sector in