By Guy de Fontgalland
Bill Gates, Microsoft ’s Guru and Warren Buffet, a multi-billionaire, combined to create the world’s largest private fund of over $150 billion to aid much needed social reconstruction across some 100 countries through projects ranging from cancer research to clean water, from libraries to clinics for the poor. In India, the Tata Group led the way in providing housing for their 2.5 million employees, hospitals, schools and temples.
The Indian who peddled a bicycle distributing washing powder in two-rupee sachets to those who could not afford to buy bigger packets and went on to build a fortune in detergents, gifted $25 million to establish Nirma University in Ahmedabad. In Georgia, the quiet billionaire philanthropist Bidzina Ivanishvili actively promotes multiple projects in aid of social and economic development. From Victoria’s Secret in the United States to John Keels in Sri Lanka, there is now a certain momentum in accelerating the gift of giving and sharing across thousands of corporations. CSR, the acronym for Corporate Social Responsibility is founded on the principle that people at large are the ultimate stakeholders of any business and that profits could be shared with them.
In the halls of most universities and academic institutions, there is now, more than ever before, a clear focus on the morality of business. Harvard’s Michael Porter who explored the realm of competitive advantage and developed the Five-Forces theory that seemingly explains the strategies for maintaining competitive advantage over other corporations may have lost sight of the eternal paradigm that competition, fair or unfair, is not necessarily a solid platform for globally shared values or globally acceptable and useful economic strategy where meagre resources need to be shared instead of being grabbed by a few. History is a witness to pockets of violence, disorder and wars arising from land grabs, uneven distribution of resources and subjugation of a people to continued disadvantages.
Corporate Social Responsibility is a meaningful effort to give back to society some of the surplus profits a corporation makes. It is commendable. It however remains a voluntary program that neither has a formal government recognition by way of tax incentives or by way of a dollar-for-dollar contribution from the State. Given the billions that are made by way of profits across the world, CSR still remains drop in the ocean. In addition, it pales out in significance when compared to the current financial and economic crisis created largely by years of “take-it-all” attitude of investment banks and very large corporations whose main corporate pursuit was profits and increase of shareholder value.
There has been, in recent years, an attempt to forge a new world order based on a mistaken belief that all nations and cultures can be formatted into a global community, adopting a mono culture in democracy, governance, globalisation and wealth generation. Before the break-up of the Soviet Union, and before China adopted the policy of controlled capitalism, the cold war was between the believers of free market capitalism and those who subscribed to socialist and communists models of economic and human development. It soon came to pass that the Soviet and Chinese ideologies could not sustain, reinforcing the principles of free market economies. But, suddenly, the free market economies of the United States, of Europe and much of the other nations are on a dangerous free fall, without an end in sight. Stock markets are taking a beating, banks and financial institutions are gasping for breath, private and corporate wealth is being eroded by the day and there is total panic on what the next day, next month and next years hold for the global community. Free market capitalism may have proved that it is also not sustainable in a world where resources are limited and where there is clear disparity in sharing of wealth.
My doctorate theses is on microfinance and an interest-rated based equilibrium model. I have been an advocate of microfinance as one of the best solutions to commence a program of banking with the poor and to inject measured momentum and energy into rural economies. Despite some of the accolades given to microfinance, there has been a mission-drift where most leading microfinance companies charge exorbitant interest rates, as high as 150 per cent in Mexico, made large sums of money and had their Initial Public Offerings ( Compartamos in Mexico) oversubscribed by seven times by institutional investors seeking huge profit margins in an industry committed to uplift grassroots economic development.
We are now, without as single doubt, in the words of the Head of the European Central Bank , and of the Head of International Monetary Fund, in the worst economic crisis since the Second World War. IMF’s Christine Lagarde has gone further in stating that there is no political leadership in sight to find and implement bold solutions. There is, in the minds of most people, a mistaken mind-set that all solutions rest with the governments, and that they , as managers of macro economies and as holders of the largest capital and resources, can deliver the goods. The often forgotten truth is that those in governments only hold the wealth of the people and that they are elected for a period of time to act as custodians and managers. It is the quality of government leadership which will determine how well the economies will be managed and people at large will have the peace of mind that daily bread will be on their tables.
Corporate Social Responsibility where business takes an active interest in their societies and people need to evolve, gain new dimensions, and become a more solid anchor for social and economic development. The concept of business is only for profits and shareholder wealth may not really work anymore and it may indeed be counterproductive if this message does not sink in. We are now witnessing the dangerous consequences of businesses running wild in pursuit of surplus profits.
(About Author: Guy de Fontgalland is President of Eurasia Management House in Georgia. He is a Harvard educated investment banker who has worked internationally for over 25 years in senior positions in commercial banks, World Bank group and with UNDP. )
( Article Sourced from The Financial. URL: http://finchannel.com/Main_News/Op-Ed/95408_Corporate_Social_Responsibility%3A_Need_New_Dimensions/)