It’s nothing new for companies to engage with local communities by supporting local charities or creating foundations. Retail giant Target prides itself on its relationship with the communities where it has stores, devoting 5 percent of profits to local projects. As well as promoting the company’s name among customers and employees, such corporate good deeds help communities to develop, says James Hale, executive VP, general counsel and secretary at Target. ‘And if we work in a prosperous community, we’re going to have prosperous customers. It’s a virtuous circle.’
But when it comes to non-governmental organizations (NGOs), labor organizations and the like, relationships with certain companies have often been antagonistic. Exxon Mobil and Greenpeace, for example, have clashed over the years, most recently over Exxon ‘sabotaging US and international climate policy’ and Greenpeace ‘impeding Exxon’s commercial activities’.
Organizations such as Greenpeace, Amnesty International and the World Wildlife Fund have become the voice of a large body of public opinion. Companies that ignore them risk at best offending, at worst losing, customers and investors. When NGOs trace social or environmental problems to a particular company or industry, stakeholders including employees and investors expect the companies and industries involved to work towards finding solutions.
Eye on the supply chain
Shabanji Opukah, international development affairs manager at British American Tobacco, says BAT first became aware of the problem of child labor in tobacco growing about five years ago when the company’s suppliers in Brazil and elsewhere in South America began an initiative to combat the problem. After some investigation, the company learned that child labor was prevalent in many of the world’s impoverished tobacco-growing regions, and decided to act.
BAT initially talked to the International Tobacco Growers Association (ITGA) and the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers Associations (IUF) about the problem. In 2000, the company signed a memorandum of understanding with the International Labor Organization (ILO) to work on a number of labor-related issues. And in April 2002, with the support of the ILO, the ECLT (Eliminate Child Labor in Tobacco) Foundation was launched, with the ITGA, IUF and BAT as founder members. Other members include Gallaher, Imperial Tobacco and Philip Morris. The aims are to develop independent research into the extent and conditions of child labor in tobacco growing; to support and fund community projects; and to establish an international code of best practice across the industry.
‘Companies are now accepting responsibility for the whole of their supply chain’ says Adrian Payne, head of corporate social responsibility at BAT. ‘Companies like BAT and Philip Morris [now Altria] are auditing their subcontractors. Leaf producing farmers are being audited and visited without any forewarning.’ Local union groups also provide some measure of internal control.
But can a tobacco company be socially responsible? ‘There is a demand for tobacco, and although the health issues are well known, this does not mean it cannot be produced responsibly,’ observes Payne. In the area of child exploitation, the company, alongside the ECLT, is not only attempting to control its supply chain, but also making a real effort to change the circumstances that lead to child labor in the first place.
Alain Berthaud, project manager at ECLT, tells of one project in Malawi. ‘Our approach to the child labor situation is integrated with efforts to alleviate poverty in the catchment areas of our projects,’ he says. If local tobacco producers can feed their families, then they don’t need their children in the fields. So as well as providing a school, the project also deals with the practical problems which might prevent children from attending lessons.’
‘Some areas have been provided with irrigation pumps so crops can be irrigated even in the dry season. This has already led to three harvests of maize instead of one,’ Berthaud continues. Forestation programs help to maintain the quality of arable land, and provide an accessible source of firewood for the communities, while new wells ensure a clean water supply. Since it is traditionally children, particularly girls, who have to fetch water and firewood, local supplies of these commodities leave them more time and energy for education.
But what is BAT getting out of it? ‘Reputation is important. If you manage your reputation, you are taking steps towards managing future risk,’ observes Opukah. ‘Many stakeholders, including consumers, shareholders and employees, are concerned about how we do business. Sustainable management adds to shareholder value.’
‘CSR is much more serious at all levels now,’ adds Payne. For example, the program has sparked genuine interest among BAT’s 80,000 employees. ‘Our workforce is pleased that our labor principles are being applied all along our supply chain.’ And although the company is not likely to be included in the portfolios of ethical funds, it is now a more acceptable SRI fund investment. ‘Although tobacco producers are currently excluded from the FTSE4Good index, we are proud to be included in the 2003 DJ Sustainability World Index and 2003 Stoxx Sustainability Index – the first tobacco company to be included,’ notes Payne. ‘We see this as an objective assessment of our continuing efforts to develop a long-term sustainable business.’
Building new markets
Companies can be proactive even when they are not specifically associated with a particular issue. Hewlett-Packard’s e-inclusion program, launched in March 2000, is an attempt to bring technology to impoverished areas in the hope that this will spur education and economic development. A noble aim, and one which makes good business sense, according to Debra Dunn, senior VP of corporate affairs at HP. ‘Our efforts in e-inclusion seek to create new market opportunities, for ourselves and for the communities with which we engage.’
Projects such as the Kuppam i-community in southern India, launched in February 2002, will expand local access to education and develop employment skills through access to technology. The aim is to build an ecosystem of partners to work on projects which will continue to be sustainable beyond HP’s involvement. According to Dunn, access to technology and education will improve local employment skills, and build community and civic involvement. She hopes community and government involvement in the project will ultimately drive economic development in the area. Chandrababu Naidu, chief minister of Andhra Pradesh, is enthusiastic, and wants to replicate the Kuppam project across several districts in the region.
HP wants to discover how access to information can help sustainable development. Since the company has a large base in nearby Bangalore, the Kuppam region seemed a logical starting point. ‘We concluded from the outset that a close partnership with the local government was also fundamental,’ comments Dunn. ‘Naidu was very enthusiastic about partnering, and Kuppam was his community.’ HP is donating the technology, while the local government is providing the core infrastructure.
HP also began seeking partners with experience in similar development projects. They came across World Corps, a Seattle-based NGO whose stated mission is to ‘train young people worldwide to become effective business entrepreneurs, community leaders and global citizens’, and which was considering Kuppam for one of its projects. ‘When we began our due diligence we discussed with World Corps whether it would be mutually beneficial to work together,’ explains Dunn. ‘We wanted to see whether there were opportunities to use and support World Corps to further the objectives of the project.’
World Corps’ operators had extensive knowledge of community development. They interviewed a large number of people and invested much time to assess local skills and interests in order to understand how the i-community centers could benefit the local community, and who was best qualified to run them. World Corps developed an entrepreneurial model, and the five centers which have since been developed, plus a mobile training station with broadband wireless access, are now run by people selected and trained by World Corps.
As the details of the project were fleshed out, the participants identified a ‘road map’ for the project, and began to look for new partners who could add their experience and fill the gaps. World Links, for example, had a well-developed experience of educating remote communities in India and Africa through the provision of content to educational institutions via satellite.
Before the HP-Compaq merger, World Links had already worked with Compaq to provide content from last year’s World Economic Forum to schools around the globe. ‘We are also partnering with Intel, which was already training teachers in Andhra Pradesh. By collaborating with Intel we can ensure their teacher training is backed by the infrastructure necessary to extend this training to the wider population,’ notes Dunn.
As well as promoting the company’s image, Dunn says there has been specific feedback from other stakeholders. ‘Last recruiting season one top MBA candidate said he was considering HP mainly because of the e-inclusion project,’ she says. ‘The project makes employees and potential employees feel good about the company.’
However, these are not purely philanthropic projects. When communities grow through economic activity, their technology needs also increase. By promoting projects such as Kuppam, HP is gaining grassroots experience of potential new markets. ‘There is an excellent financial case for the project,’ concludes Dunn. ‘A significant social contribution is simultaneously generating business value.’
Recruitment & customer relations
When in 1988 Timberland donated 50 pairs of boots to the non-profit group City Year, the company hardly expected it would be the beginning of a long and fruitful relationship. But when City Year invited Timberland executives and employees to come and see what their donation meant, CEO Jeffrey Swartz, who was COO at the time, went along and found the experience ‘inspirational.’ From then on Swartz would be instrumental in the development of the continuing relationship between Timberland and City Year.
The founders of City Year wanted to make voluntary community service available to US youth from all backgrounds. Alan Khazei, CEO and one of the organization’s founders, hopes that ‘giving a year of service will become a common expectation – and a real opportunity – for millions of young Americans.’
Timberland became one of the main supporters of City Year which, from its small beginnings in New Hampshire, has grown its membership to 1,000 in 14 chapters across the US plus one in South Africa, and works with around 300 US companies. Last year City Year, along with many Timberland employees – who are allowed 40 paid hours a year for voluntary work – promoted various projects aimed at meeting the needs of their local communities.
The relationship has produced benefits for both sides as well as their communities. Says Khazei: ‘While the company has been fundamental to the success of our organization, we are also proud of the impact City Year has had on Timberland.’
‘City Year helped us think about service in a more meaningful and sustainable way,’ agrees Carolyn Casey, Timberland’s director of social enterprise. ‘The relationship has also brought an energy and enthusiasm that inspires our employees.’
There are concrete benefits too. ‘City Year is highly skilled at team building exercises,’ says Casey. ‘They often train our employees as project coordinators, teaching all the skills involved, skills they can bring back to the workplace.’ Furthermore, many initiatives reinforce the relationship with customers. Last year a City Year service day at a women’s shelter in Manhattan saw Timberland and Macy’s employees helping to renovate the offices and fit the fire alarms at the shelter. Casey says the relationship with Macy’s was strengthened through this shared experience.
‘A company’s reputation is not simply the intangible asset of brand equity, but also the ability to attract top quality employees,’ says Aron Cramer, VP of business and human rights global activities at advocacy group Business for Social Responsibility. ‘Bad labor practice has a demoralizing effect on employees.’
In 2000, sell-side analysts from Merrill Lynch and Morgan Stanley recognized Timberland’s socially responsible image as instrumental in attracting talented personnel. They included Susan Ostrow, now Timberland’s director of IR. ‘When I applied for a job here, one of the things I liked was the 40 hours of community service,’ she says. Casey agrees: ‘I consider myself privileged to work at a company where people are so passionate and compassionate.’ No surprises, then, that Timberland has been one of the Fortune 100 best companies to work for in each of the past six years.
Fortune magazine has also noted how community projects can reinforce a company’s brand recognition. And, points out Ostrow, certain synergies can be developed ‘by tying marketing into CSR programs.’
‘While it is essential that Timberland creates profits for our shareholders, it is just as essential that we create value for our communities,’ says Swartz. Investors are beginning to realize that this may work two ways: that companies which create value for their communities may also be doing a great deal of good for their brand recognition, recruitment, customer relations and, at the end of the day, their own bottom line.
