Corporate Social Pacts Under Pressure

Under increasing economic duress – ranging from the global economic crisis to fears of an influenza pandemic – corporate boards have cut back on spending though not necessarily on social responsibility programs, many of which are being overhauled to focus on more sustainable projects and on helping further corporate profitability goals.

Most companies peg commitments to corporate social responsibility (better known by the acronym CSR) as a percentage of their revenue. Even Starbucks, long a leader in CSR standards, spent some US$14 million in 2008. The spending was US$4 million less than the year before, though still higher as a percentage of total earnings, according to Rodney Hines, the company’s director of community investments and executive director of the Starbucks Foundation.

Anita Cava, director of the business ethics program for the University of Miami, cites her own family in Argentina and her students in Miami as prime examples of why corporations are spending more to spruce up their image: business ties and transactions are more transparent now, information is more readily available thanks to the Internet, and consumers are taking that information to heart before they make purchases.

“Everyone is watching the bottom line,” Cava said. “But at the same time, companies are mindful that making a buck at any cost has huge consequences.”

From Starbucks headquarters in Seattle, Hines said, every project that receives funding from them is evaluated for sustainability. For example, this year the coffee company is winding down a four-year US$1.5 million commitment it made to build a school in Guatemala through the non-profit group Save the Children, one of many projects Starbucks funds throughout Latin America. The school uses native story telling techniques and incorporates local languages into its curriculum in order to facilitate the learning of Spanish and other subjects. The school finances itself through a combination of local and international support and other subsidies.

“When we look at our grantmaking, we look at what’s critical – what’s the real impact,” Hines said. “We don’t ever want to see a project end because our grant ends.”

Alyson Warhurst, founding director of social enterprise for the U.K.-based consultancy Maplecroft and the chair of strategy and international development at the Warwick Business School, said companies should look at CSR in terms of managing reputation and risks as well. The latter, she adds, are much broader than just financial risks. Warhurst cites the recent flu outbreaks as an example of how the collision of social, environmental and business practices – in this case the high concentration and close proximity of swine to human populations – can have a wider-ranging impact than just the immediate business and location. In this case, Mexican exports and tourism weren’t the only sectors affected by the outbreak of the flu. Global transportation patterns were also disrupted and health systems were taxed as anxiety about a possible pandemic spread worldwide.

“The whole world is interconnected: You can’t fail in hygiene and lack of access to clean water, for example, without there being a broad impact,” said Warhurst, who is also a former researcher in Latin America for the International Development Research Centre.

Despite the economic strains, indications are that global corporate commitment to CSR remains strong. An online poll conducted last October by the research firm CSR International indicated that 44 percent of CSR professionals believe that CSR commitments would increase as a result of the financial crisis, while only 22 percent thought it would weaken. A round of interviews with a number of large multinational companies seemed to bear that evidence out.

Leonardo Ortiz Villacorta, the head of corporate citizenship for Microsoft Latin America, said the software giant has shrunk its direct investment in social programs in the region “but not by much.” Instead, Microsoft has shifted its resources to education, retraining and innovation, with a big focus on job creation in the region. 

For example, Microsoft provides cash and software to governments; non-governmental partners such as the Trust for the Americas, the philanthropic arm of the Organization of American States, and the Committee for Democracy in Information Technology; and private sector partners, such as Bradesco, Teléfonos de México and Telefónica. These partners, in turn, build call centers or training facilities. “We never do it alone,” Ortiz said.

“We are telling governments and the private sector that they need to continue to invest in technology,” Ortiz said. “If you continue to innovate then you will be on top.”

One Microsoft-funded program, run by the Trust for the Americas, has provided training and job placement to several thousand disabled Latin Americans, who rarely find emploment in Latin America. Ortiz cites the case of a 19-year old Guatemalan, named Freddy, who is visually impaired but joined the program, known as POETA. The training helped Freddy land a job at the call center for one of that country’s largest banks.

“At the end of the day there are functions in technology that allow you to interact even if you can’t see or hear,” Ortiz said.

Nokia takes a similar approach by focusing its CSR efforts toward the use of its own products – the company is the largest mobile phone manufacturer in the world. 

Natalia Riquelme, Nokia’s community involvement manager in Latin America, said the company has signed agreements with mobile carriers such as Telefónica and Movistar to distribute educational software that run on Nokia phones. Another CSR initiative called Nokia Data Gathering helped the ministry of health in Brazil gather and centralize data used to manage a recent outbreak of dengue fever in that country.

It is this type of corporate giving that is becoming the norm, said the University of Miami’s Cava. Companies with incipient CSR programs that rely mainly on philanthropy – sponsorships, donations or employee volunteering – are the ones more likely to cut back commitment this year, she said, adding that “the more embedded a CSR program is, the more strategic it is.”

Jacqueline Montesinos Suarez, corporate citizenship manager for the Latin America division of business software company SAP, said her regional CSR program is only five years old but is based on partnerships. “We have IBM and HP, which have been doing CSR in Latin America for years, and we went to them to see and learn how to build our program out,” Montesinos said. The division went from 20 percent employee volunteer participation to 50 percent participatiion during that time.

Now, Montesinos said, the company is inserting CSR in the sales process: having SAP’s corporate citizenship team meet with the corresponding team of the potential customer to see if there are mutual goals they can work on together. “We’ve done it with Home Depot; it’s helped us take that partnership to a whole new level,” she said. SAP executives also mentor entrepreneurs sponsored by the global business incubator Endeavor, whose board of directors is peppered with some of SAP’s largest customers.

The inter-connections do not stop there. When SAP wanted to double the number of consultants it had working in Latin America, it partnered with local companies and governments to offer scholarships to its certification program worth between US$1,500 and US$3,500. Last year, SAP awarded 200 scholarships in Venezuela through partnerships with IT integrator Sofos and beverage giant Empresas Polar, and around 500 scholarships in Argentina through a partnership with the Ministry of Labor.

Maplecroft’s Warhurst, describes these programs as typical of Latin America. “There is a real investment in workforce training and there is a real sense of independence,” she said. “They invest in capacity building.”

All industries are feeling the pinch and few have been harder hit by the financial crisis than banks.

Laura Alamillo, a senior communications officer who helps oversee CSR efforts for Citi Latin America, said budget cuts forced the elimination of some programs, but the bank still sought out partners to make up for the shortfall. Among them were U.S.-headquartered organizations, such as Boston-based Acción International and FINCA International, which provided microcredit, business training and other financial services to low-income applicants, who use the money to start their own businesses. The borrowers receive funding from Citi and its partners and more recently have had access to training and educational programs that Citi has provided.

”Undoubtedly, the financial downturn has had an impact on the world and that has trickled down to microfinance,” said Soledad Gompf, vice president for new business development initiatives for Washington-based FINCA. 

The organization, which began to make small loans to women in Latin American in 1985, approached financial firms looking for investments before the credit crunch hit, Gompf said. But now, “the crisis has really slowed down that process,” she said.

Gompf, who began working in microfinance 16 years ago, said it is difficult for many people to comprehend the difference that even US$50 can make in the life of the people in the lowest income brackets. She said she recalled the story of a Nicaraguan woman, whose tortilla-making business was floundering because of the high interest rate she was paying to a local loan shark. A small loan from FINCA allowed her to invest her profits back into her business and hire a helper to sell more.

“The biggest challenges we’re facing are the unmet needs for our product,” Gompf said. “We have stronger infrastructure in the countries we operate in now; we’re trying to keep up, but our projections are tempered by the availability of funds.”