Africa, 'rising powers' and responsible investment

'The private sector' covers a huge variety of actors. Debate on responsible business, and on engaging business in development, can tend to gloss over this.

The vast majority of stuff written on these topics clearly has in mind only large Western listed companies, yet seldom clearly states this focus-choice, and even then treats such entities as a fairly coherent class. 

There is not enough attention to how different industry and finance sectors have very different incentives, regulatory levers, risk-appetites (etc) in terms of responsible and/or conflict-sensitive business conduct. Within sectors too there is typically significant variation among in how different firms deal with these issues, including variation among firms of the same 'nationality': there is too little good research that demonstrates how this is so (Luke Patey's Sudans oil sector work 2005+ is an example / exception).

Likewise, as argued previously -- and despite the first-glance attractiveness of the proposition -- there is insufficient empirical basis for the assertion that listed OECD-country firms generally have a superior enviro, social and governance footprint in developing countries than Chinese and other firms.

Evidence-based arguments on such things are vital to wider strategic debates about leveling the regulatory / responsible business playing field among foreign investors in Africa. Awareness of the varying capabilities, propensities, motives etc of different business sectors and firms is a good place to start in the advocacy, design, implementation and monitoring of responsible business mechanisms.

This week I'm at a DFID-sponsored workshop of a longer-term project on mega-projects, 'new powers' (BRICS) and conflict prevention in Africa. One of the (academic) questions I think that our research must engage with is the relevance of investors' national origin, ownership (state or private), form of incorporation, etc., to their varying amenability to regulatory overtures intended to mitigate conflict risk and other social harms.

This is a link (here) to a recent paper making the somewhat contrary point, too: that from Africa's perspective it matters not whether investors are Norwegian or Nigerian, Chinese or Canadian. What matters is their capacity and inclination in fact to contribute, within what can reasonably be expected of them, to inclusive, peaceable and sustainable development.

Also this week are two similar events in London on country and corporate uptake of the UN Guiding Principles on Business and Human Rights, adopted three years ago this month. One event looks at 'due diligence' requirements. The other I'm attending and looks at the contribution of multilateral schemes to compliance with such standards in conflict-affected or at-risk areas (see #bizconflict).

Like some of the re-emerging debate on the necessity for, desirability and feasibility of an attempted negotiated treaty on (the state duty on) business's human rights responsibility, such events in the past have often (to my mind) featured well-meaning advocates who tend to speak of 'business' or 'the private sector' as some alien out-there but coherent social force rather than a dizzying array of commercial actors and interests which happen not to be governmental or non-profit. Hence the sense that advocacy and regulatory design could account more cleverly for variation by sector and other criteria.

Such events also naturally focus on Western listed privately-owned firms. But they thereby risk omitting those state-owned (and other) firms from 'rising powers' whose activities are of high significance to development in sub-Saharan Africa. When attention at such events does turn to the latter, the assumption is that Chinese and other firms have poorer records on relevant social impact and development indicators. Again, this assumption lacks a solid empirical basis.

The first step to influencing responsible business activity is to understand 'business' and how it is operating in fact -- wherever it is from.

Jo

'Engage or fail'? Stakeholders in African investing

Africa investment risk advisers can sound good and play it safe by merely stating the obvious.

Yet the obvious is never pure and rarely simple. If it were otherwise, such advisers would find little demand for their services.

A recent report by FTI Consulting warns that investors in Africa risk failure if they do not 'engage' with government and social stakeholders: here.

Two remarks here. The first is that this is not new insight. The report calls itself -- and the strategy of engagement -- 'a new approach' to risk management in Africa. Well, not quite.

True, directly invested firms, especially in time- and capital-intensive sectors such as mining, have over time shifted towards seeking positive social impact, rather than just attempting neutral impact, mitigating negative impact, or not considering local impact at all. They have faced pressure to do so, on various fronts. To shift effectively they have had to re-conceptualise their relationship to host governments and communities. Some have also sought to see this embedded-ness as a value-creating exercise not just a risk-managing one. Still, it is a bold consultancy that presents as a new idea the notion that firms might further their objectives by engaging their host governments, and might protect and enhance their long-term value proposition by deepening their social license to operate through various forms of local inclusion, investment, outreach and disclosure.

The second remark is that consultants do their clients a disservice to simply state the obvious ('engage with stakeholders' ...) as if (a) the process of doing so will be self-evident, (b) the consequences of enhanced engagement are always manageable and foreseeable, (c) the identity of relevant stakeholders is clear and (d) these stakeholders are passively awaiting engagement by corporates and have no mixed feelings or motives of their own. None of these is typically the case in fact.

True, responsible firms with long-term plans in African localities would be well advised to pursue more deliberate, strategic and intensive stakeholder engagement. But the FTI report frames this as a risk-management strategy, when in fact the process of expanding and deepening links to host governments and social groups is neither easy nor risk-free. Few serious firms in Africa would read such a report and say 'Thank you -- it had never occurred to us to reach out locally'. They are far more likely to say 'Yes but it is hard, who is who, what do stakeholders really want, is this our role, where does it expose us?' and so on.

Reports such as FTIs make it seem as if not engaging is risky, but simply 'engaging' solves all social and political risks. That is far from obvious. 'Engaging' can itself become the source of (ok often manageable) risk. It assumes governments and communities speak with one voice, know what they want, understand firms' viewpoints, etc. Now these things are better handled by firms adopting an explicit pro-engagement mindset, actively seeking to find shared ground with authorities or other stakeholders, or delineating the extent of their responsibility. But merely calling on firms to 'engage with stakeholders' tells them nothing about how to do so, and suggests a far easier, smoother process than ever exists in fact.

I say all this partly because of my own fatigue (and my perception of generalised fatigue) at the constant refrain about 'engaging'. It heavily marks the whole area of sustainable / responsible business, and of cross-sector cooperation on development issues. My own blog goes on about it. So does a policy brief I wrote, published last week, on engaging the private sector in peaceful development in Africa. Yet I think a healthy dose of realism is required.

We use 'engage' as a short-hand, convenient phrase in the context of business-government-social relations because our intuition and ideals tell us it is better (for development impact, risk management, etc) than non-engagement. Yet it is far easier to call for than to do. Too few in my field seem prepared to admit this, as a recent post in effect noted, as did another post on enthusiasm for the act of public-private 'partnering'.

Last week's post made the same point in relation to NGO-business collaboration: on balance productive and advisable, but hardly a smooth ride.

Jo

Post-script:

The FTI report's mini-poll of WEF-Africa attendees does reinforce a good point: foreign investors in Africa have a long way to go in communicating better with / to local stakeholders. In previous posts (see 'Corporates, Communities, Communicating' here) I've noted that firms involved in the bumpy African growth story can improve their messaging about the nature of the constraints they face, their limited ability to meet social demands, the delineation of their responsibilities from those of government, and so on. High expectations of firms (individually and as a class) are a source of risk, both directly and in feeding arbitrary and/or populist-placating fiscal demands and regulatory actions.

NGOs and business: critics to capacity-builders

The promotion of responsible business practices in Africa will benefit from NGOs not just criticising firms but engaging with them along the value-chain.

Last week the deadline passed for US-listed companies whose supply chains may involve so-called 'conflict minerals' to submit certain plans to the stock exchanges regulator. These plans explain how they intend to ensure that their products will not use minerals mined in conflict-affected areas marked by force-based labour methods and serious systematic human rights abuse. For an accessible overview, see this BBC report.

That these regulations exist at all (*) is largely the result of long-running, intensive campaigning by groups such as Global Witness. Often this has involved exposing firms who know of (or unreasonably undertake no due diligence in relation to) the problematic social context of their supply-chain inputs.

In an open, democratic society where much of the aggregate of social power is wielded by private individuals and entities (and where state regulatory capacity is stretched or distracted) there must always be a place for organisations committed to critical monitoring and advocacy around corporate responsibility for enviro, social and governance impacts.

So critical advocacy, shaming and boycotting have their place. However, they do not necessarily result in solving the underlying problem.

In particular, these are strategies that tend to assume nefarious motives or indifference on the part of firms. These strategies do not account for the possibility that corporate non-compliance with responsible business standards may be a result of lack of capacity and/or understanding, not a lack of will.

In the same way, an advanced society needs a capacity and will to punish certain criminal conduct, yet acknowledges that a more constructive, problem-solving, restorative approach is needed to change behaviours. Regulatory theory tells us that the best-adapted and appropriate systems are those that not only tell or incentivise regulatees to comply, but also devote time and resources to helping them understand what counts as 'compliance' and how to achieve it (or indeed to go beyond compliance, through continuous improvement).

Of course, NGOs have for years (and increasingly in the last decade) engaged more closely with business in pursuit of shared objectives. The Aspen Institute report on the future of non-profits' ties to business pointed out the merits and drivers of this trend over a decade ago. (For a recent overview of these trends, see here and see FSG's report 'Ahead of the Curve' on the international NGO of the future, including its need to engage business more readily in achieving civic aims).

What is different, and to be welcomed, is the greater recognition by NGOs and civil society coalitions that compliance with supply-chain integrity issues is often complex, and that many firms may need advice as much as criticism. This is true, as said, of regulation generally as an activity.

The greater the degree of engagement and cooperation by a non-profit, the greater the risk (from the non-profit's perspective) of 'capture' by corporate interests, or the loss of authority credibly to assess business compliance. Where engagement is intended to help overcome obstacles to compliance, these are manageable and acceptable risks considering the nature and scale of challenges at stake, and the convergence of corporate and civil society interests in addressing these.

One recent primer in this regard is Corporate Responsibility Coalitions, co-authored by Jane Nelson, on new forms of alliance for more sustainable capitalism.

Firms across sectors and up/down supply chains are seeking alignment of responsible and sustainable practices -- and often NGOs can help catalyse these inter-firm relationships; indeed, many firms learned from their tentative relationships with civil society partners how also to reach out to ostensible competitors or other firms on shared issues.

Firms can, strictly speaking, point out that it is for the governments of developing countries to regulate social (etc) impact issues, such that compliance failures ultimately reflect the state's failure. However, such a response is unlikely to satisfy critics -- or increasingly discerning consumers, financiers and insurers, at least in the West.

Yet as an Economist article noted last year, NGO-business partnerships and collaboration is good for society (and business), but these relationships are often messy, tricky, difficult, unsatisfying.

Jo

(*) Note, the US Supreme Court recently ruled on the application of the Dodd-Frank Act in relation to the regulation of conflict minerals in US-linked firms.