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Financial Times: A model still striving to prove itself

By Andrew Jack
Published: July 5 2007 04:04 | Last updated: July 5 2007 04:04

When a thousand senior corporate figures, top government officials and heads of non-profit groups gather in Switzerland today, they come together not in Davos but in Geneva, to discuss corporate citizenship.

The conference, organised by the United Nations Global Compact (UNGC), highlights growing interest by business in issues beyond the conventional bottom line, whether driven by self-interest or by a broader sense of responsibility to their community.

“Companies operating globally in different legal environments and social contexts see the need for a moral compass as they leave the safe haven of their home markets,” says Georg Kell, head of UNGC, which since 2000 has recruited 3,200 businesses from 116 countries. “Those companies which take a pro-active view of the environment, social issues and good governance are on average better equipped to assess risks.”

As the debate around corporate citizenship builds momentum, there is similar excitement in the philanthropic sector. Economic growth – and record bonuses to bankers and hedge fund owners – has swelled donations, which reached a record $295bn last year in the US alone, according to Giving USA.

Furthermore, many of the new generation of business donors are keen to become more actively involved with their recipients, providing expertise as well as money in an effort to achieve results and solutions to social issues rather than simply offering the traditional “palliative care” of charity.

All that ought to be good news for organisations seeking “social returns”. There is certainly a blurring of traditional definitions and divisions between for-profit and non-profit groups, and between corporate social responsibility and enlightened philanthropy. Many of the different actors face common challenges – and fresh scope for cooperation.

Harvey McGrath, head of Man, the investment brokerage group, is involved in the full range of such activities. His company’s high-profile sponsorship of the Man Booker prize for fiction he sees as “an extension of marketing and branding”.

Separately, he says that his personal and his corporate philanthropy “are driven on the same basis of seeking effectiveness and impact. The main difference is that with corporate responsibility we encourage engagement by people who work in the business, and give more weight to activities linked to our products, services and location.”

The fact that this week’s Geneva meeting is arranged by an agency of the UN illustrates how far international institutions have changed since the widespread suspicion if not hostility towards multinational corporations a generation ago.

And attendance by those from the non-profit sector as well as the commercial world reflects the growing recognition of the importance of partnerships between often mutually suspicious groups. Together, they can deliver results that neither side could achieve alone.

Some argue that companies make their best contribution to society by simply sticking to profit maximisation, in the process delivering goods and services, economic growth and investment, employment and tax revenues.

But increasingly executives are taking a broader view. Topics that were once perceived as marginal or radical – whether the fight against obesity and global warming, or the efforts to support fair trade and just labour practices – have become more mainstream.

Working in conjunction with non-profit groups can help attune corporate antennae to important new trends, enhance reputations, help operate more effectively and even generate revenues as well as achieving social good.

For instance, while support for causes such as the fight against Aids might look like good citizenship, for mining businesses such as De Beers and Anglo-American operating in sub-Saharan Africa, where their workforce is heavily affected, it is central to their core needs. There are also external pressures for companies to do more. The UNGC says that its principles for responsible investment have now been adopted by more than 180 institutions holding $8,500bn in assets under management, and who screen for good environmental, social and governance practices.

Other filters, such as the Dow Jones Sustainability Index and FTSE4Good, point to a broader appetite by fund managers for greater sensitivity to executives’ handling of bribery, workforce issues and the environment.

There is also the veiled threat of government action if businesses fail to adapt. At this year’s G8 summit, the final declaration explicitly urged businesses to assess their compliance with corporate social responsibility.

The Organisation for Economic Co-operation and Development gained some recent credibility with its anti-corruption task force stirring troubles for the British government and BAe Systems over alleged bribes to support previous defence contracts in Saudi Arabia.

In partnership with non-profit organisations and governments, companies have helped create and participate in initiatives such as the Kimberley Process to tackle conflict diamonds, the Extractive Industries Transparency Initiative, and the Equator Principles committing lenders to scrutinise the environmental and social impact of projects they fund.

More generally, there is considerable convergence taking place between public and private. Kurt Hoffman, head of the Shell Foundation, which supports for-profit solutions to social problems, says: “I’m not saying that privatisation and business is always the solution, but that business skills can help.”

Non-profit organisations are evolving fast, with groups such as Grameen Bank in Bangladesh that have made the transition from a charity into a commercial enterprise, while popularising micro-finance.

“Social entrepreneurs” are attracting attention by applying business skills to social ends, while many “venture philanthropists” who became rich through their investments are trying to apply the same rigorous, activist approach to donating their money in a way that solves problems.

Among intermediaries,, the philanthropic arm of the search engine, has adopted a hybrid legal status, giving it greater flexibility to support for-profit and non-profit entities, maximise returns and lobby without the constraints imposed on US charities. Other foundations have started to explore “mission-related investment”, seeking to use their endowments in line with their objectives rather than the more conventional approach of maximising investment returns to boost grant-giving.

But there are considerable challenges ahead for both companies and non-profit groups that are seeking to do more.

First, the number of partnerships and the extent of funding still remains extremely modest, with corporate funding estimated in the US and the UK as only 3-5 per cent of total giving. Second, there is a growing desire for greater focus. A survey by the Conference Board of US companies highlighted that the top priority in corporate giving would be to align it more closely with business needs.

That brings risks for those non-profit groups with a focus perceived as less central to corporate interests, or – even for those “venture philanthropists” seeking rigorous results – those operating in areas where their ability to deliver short-term and measurable outcomes is limited.

It also brings challenges for greater transparency and efficiency, to highlight best practice and improve the quality of partnerships. It is for this reason that the FT is today collaborating with Dalberg Global Development Consultants and the UNGC to produce a ranking of the world’s best NGOs, as judged by companies.

Copyright The Financial Times Limited 2007 and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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