Where responsibility meets risk management

The trend towards bringing non-financial issues 'to the table' in boardrooms, alongside 'core' business strategy, has received much attention in recent years.

This week UK-listed Tullow Oil (a leader in recent successful exploration for new hydrocarbons assets in Africa) announces its intention to disclose project-by-project payments made to partner governments. This is in anticipation of EU disclosure rules, but includes voluntary disclosures that go beyond pending regulatory requirements.

Whatever the firm's strategy, the news underlines the tension sometimes identified between 'first-mover' advantage (when a firm moves ahead of the apparent regulatory trend, reaping the reputational, adaptation and other benefits) and the risks of assuming pre-regulatory obligations not required of one's competitors in a sector where no level playing-field exists.

This post extends the last one's discussion of 'core business' issues, where the operative word in the para above is 'strategy': unless championed by a proactive board, those working on sustainability / enviro, social and governance / responsibility issues have typically found it necessary to devise internal strategies to make their issues considered as part of wider firm strategy.

While vocabulary matters for basic cognitive shifts (such as seeing 'risk' as 'unlocking value'), this endeavour of getting sustainability (etc) issues 'to the table' goes beyond imaginative manipulations of vocabulary, or ensuring these issues are integrated into annual reporting. There is a pressure to express 'non-financial' risk issues in terms of core business value creation, beyond loss mitigation.

For example, those inside firms with global supply chains tend to advance the idea of using 'sustainability' as a lens for 'innovation'. The latter gets the attention of 'core'-minded boards more directly. It is an effort to frame sustainability as core business strategy at least in relation to supply chain systems. The new vocabulary of 'circular economies' is partly a reflection of this (and partly a reflection of common business sense, at least in the long term).

Although not everything that counts can be counted, this pressure to demonstrate value and return on investment is understandable, inevitable, and if anything promises to bring new discipline and rigour to the field of responsible business practices.

There is much talk of business and development practices in Africa 'leapfrogging' stages and bottlenecks, and turning adversity and novelty into innovation, advantage, value. There is much work to be done assessing how the continent's rise might also be a crucible for altered views of what comprises the 'core' of business strategy.

Jo

There are analogies to be drawn for in-house sustainability / ESG practitioners from a recent Accenture report on efforts in the banking and finance sector to get 'dull' risk compliance issues a 'seat at the table' ("hard to earn, hard to retain").

Plenty of guidance exists on how to go about doing this, at least in theory (there's a more heavy-going literature but here's one accessible and recent primer, there's the Harvard project on getting these issues into boardrooms, and here's another from BSR). The challenge in converting ideas into practice (or from the periphery to the core) is not necessarily different from other fields, as noted in this FT piece on the hunger for sustainability subjects in business education.

See also this recent post on this blog on corporate communications.

'Core business' and sustainable development

Next month will mark an important juncture in global debate on engaging the private sector in achieving development goals.

The inaugural high-level meeting on global partnerships for effective development (here) can be seen as part of the long (already well in train) build-up to the 'post-2015' era, where global public policymaking seeks consensus on overarching developmental priorities.

The post-2015 process matters and, like the 2000 Millennium Development Goals, the goals and targets agreed will provide a big steer for thinking and action across ensuing years. Yet this macro-framework is hardly the entire universe of development, and at many other levels, on many issues, policymakers are exploring what roles business can play in meeting development imperatives and aspirations. It is not all one-way outreach from the public to the private sector: some parts of big business are also seeking to influence policymaking, including because of their recognition that developmental problems or possibilities have a direct (especially longer-term) relationship with business ones. The previous post made this point.

There is much that a blog on the intersection of business, society and government could cover (not least around who one means by, or who gets to speak for, 'business' or the private sector). This post reflects on one issue where two big trends meet. Those are the trend on the 'engaging business in meeting global and national development goals' and the one on 'promoting responsible and sustainable business practices'.

Big business will often argue that its best contribution to wider development goals is to flourish at doing its 'core' business. It is short-sighted to dismiss this argument as simply a disingenuous rhetorical device for avoiding wider social responsibilities. In the fundamental activities of procuring, employing, tax-paying, etc, lie far more transformative development potential than the sometimes therapeutic activities of conventional corporate social responsibility / investment activities.

Aside from fair and appropriately used taxes, the best development contributions of big business will almost certainly come from leveraging their core activities. For instance, mining house Anglo-American's procurement budget is 100 times its social investment budget: finding ways to localise some of its supply needs in operating countries holds far more promise of economically empowering local people than exhorting it to devote more funds to social investment programmes.

The global debate next month is important, but more significant will be country-specific mechanisms of conversation and collaboration that find productive linkages between business strategies and national/local development plans, without necessarily privileging some firms or sectors over others. This is one feature of TPI's roadmap this month on engaging business in development.

To leverage the development gains of 'core business' activities to their full, those core activities must meet their full potential in business terms: to harness (developmental) power one must also release or unleash it.

Thus one challenge for contemporary policymaking in Africa, the region covered in this blog, is to implement policies that enable and incentivise private business activity to flourish, while also fostering inclusiveness and distributive equity, and promoting responsible environmental, social and governance (ESG) practices. Unleashing the developmental power of business in many ways simply involves exploring scope for public-private win-wins. Yet at some level it will also raise a host of policy design dilemmas and force governments to confront tricky questions about the overall role of the state in the economy, quite apart from strategies for conditioning unleashed business in appropriate ways that ensure 'people' and 'planet' are accorded value alongside 'profit'.

Those who work in-house on ESG issues are very familiar with trying to bring issues into the 'core' boardroom from the perceived priority periphery. Yet as obvious and familiar as it sounds, what efforts to engage business on development goals have in common with efforts to promote responsible business practices is that their success is likely to depend on how closely they can be aligned with 'core' business processes and thinking.

The challenge for those concerned about longer-term sustainability and equity issues (whether working within or outside major firms) is also to redefine in credible, persuasive terms what issues count as 'core' issues. In mechanical or system terms, gears are what link to the engine: the task of leveraging and redefining 'the core' in ways that maximise developmental gain and minimise social and environmental harms is a profound exercise in gearing.

Jo

See this post from a year ago on the post-2015 process, and subsequent ones on this blog.

Responsible lobbying and responsive government

Will it irritate some readers to assert that serious business leaders are just as interested in inclusive, sustainable growth as responsible public officials?

I find the statement unsurprising. Even if there is still more rhetoric and hyperbole than anything else about public-private action on meeting development goals, in my view no-one has demonstrated why the policy risks of engaging the private sector in resolving development challenges outweigh the potential gains from appropriate collaboration.

And here I think the real question is not collaboration, or having conversations about collaboration. Again, those seem obvious. The real question is what constitutes 'appropriate' forms of both.

Later this post observes an example from my own research that bucks the prevailing view that policymakers talk (or listen) too much to corporate views. It shows that the problem in at least one development sphere is the opposite: they do not seek the views of business, an important stakeholder in peace and prosperity.

I will start again. This longer-than-normal post makes two points. First is the one just made: major social and developmental gains are surely possible where business and government find common ground and can agree (or share) respective roles. Second, realising these gains requires deliberative engagement, but the means by which business and government seek to influence each other matters.

Global business is not representative of all that is virtuous, yet I do not propose to dwell on the first issue. At some level it appears somewhat self-evident. Take the issues that routinely top the list when leading firms make macro-analyses and scenarios about long-term risk or opportunity. I am fairly confident they are also the same issues that do (or should) trouble responsible, future-minded policymakers: inequality and exclusion, insecurity and joblessness, resource scarcity and climatic uncertainty ...

On the assumption, then, that there is lots for business and government to talk about in maximising the developmental impact of core business strategies, and in formulating public policy that harnesses private sector strengths (and fosters responsible business practices), let's turn to the second issue: what is involved in talking?

Corporate lobbying and public-private forums and pathways to explore development synergies are not necessarily the same thing, although both do involve parties trying to steer things in some way.

It is true that not all corporate chiefs are leaders -- just as not all officials pursue the public interest. It is also true that only officials represent the populace, and we must remain aware that 'partnership' between public and private sectors does not imply equal levels of legitimate authority: private economic activity is a highly important sphere of human freedom, but it is after all a public world, the public's world.

But both groups matter for development, unless we believe that governments alone hold all the tools for ending poverty and all the keys to unlocking opportunity and potential. The evidence suggests otherwise. Both groups matter, so it matters that they talk about the things that matter to both.

For business and government to understand and respect each other, and uncover what are the areas and scope for these development / growth 'synergies' [sorry], they clearly need to talk, to 'find' each other. This takes time, and trust. Implicit in that is proximity, regular contact, dialogue. How is this closeness developed or sustained, without damaging the public's trust in the process? How do big business and government discuss common ground without either one distorting or misappropriating the ground itself? How do we convince officials not automatically to distrust corporate motives, or convince corporates that sitting with policymakers can enhance their long-term strategies, not just delay or constrain them? 

Thus this post returns to the topic that the last one ended on: how do we build appropriate forums or channels of communication and influence so that we have the benefits of legitimate and vital private sector perspectives on public policy relating to development, but without subverting broader public interests by basing policy (or its implementation) on the preferences and interests of a narrow class of players?

A recent Economist article (*) on the pervasive effect of corporate lobbying noted how US regulatory authorities devising the Dodd-Frank Act met far more often with banks than with community or consumer groups. Yet my forthcoming book on engaging business in post-conflict peacebuilding reveals an entirely opposite problem: policymakers do not talk with businesspeople about shared interests in peace and prosperity, and about what business can do to contribute (appropriately...) to these goals.

Thus from Haiti to Liberia to the Sudans, I found that peacebuilding authorities meet far more often with civil society groups (many one-person outfits) than with businesspeople. Indeed typically they ignore the private sector altogether, either never considering them 'stakeholders' in the first place, or actively avoiding encounters for fear of being 'tainted'.

I could go on (the book does...). The point is that the lack of a strategy to engage the private sector on issues of mutual interest manifests as a lack of policy frameworks (safe places, platforms, parameters) for these important conversations to take place.

So whereas most of the concern is that business is too influential, on some important development issues it is not being sounded-out nearly enough.

A few other thoughts, briefly:
* Debate on responsible lobbying neglects smaller businesses, which struggle to engage with policymaking in the region I follow, struggle to make their voice heard to governments. Yet they often hold far greater promise of job-creation and local empowerment than most major foreign investment projects. There is much scope for big foreign firms to sit with government and local chambers of commerce on building backward linkages into local economies.

* In many settings, business and officialdom are the same individuals, families. Development policy must arrive at suitable frameworks for principled engagement if it is to influence policies for inclusive growth in such settings as Angola.

* In many places the risk is not that business will 'capture' the state and its regulators by having closer dialogue, it is that the state either neglects business or is predatory and extortionate.

Note that April 2014 is the first high-level meeting of the OECD-DAC global (business-government) partnership for effective development cooperation: see here. See also TPI's roadmap document ahead of this forum, here.

Jo

See the Global Compact's guidelines on responsible corporate engagement in policy debates on the development issue of climate change.

* The Economist 22 Feb 2014, p. 14, discussed in the previous post.

See here for some previous posts on the private sector's role in development.

Business and shaping the business of government

History not having ended, somewhere out there is a perfect equilibrium of state-business-civic relationships and roles, catalysing and manifesting an ideal form of sustainable, inclusive development.

Over dinners here in Oxford I envy science-nerd friends whose research seeks (and often finds) pathways, combinations, formulas to unlock or unblock cells or substances in ways that might dramatically improve life and health. Policy and political economy hold less tangible rewards. I console myself by saying that perhaps we policy folk have a similar vocation: finding judicious and productive formulas of governance and collaboration, to unblock whatever constrains, corrupts or conspires against better social, regulatory and growth models: ideal cooperative forms mapped to suit the unique DNA of particular societies, sectors or supply-chains. 

This week's post reflects on aspects of the just-published special report on 'Companies and the State' in The Economist of 22 February.

First, the lead article states that relations between business and government are becoming "increasingly antagonistic". That may be true in richer OECD countries (on which the report focuses). However, in contrast to any trend of antagonism, arguably in development policy circles and among leading multinationals there exists increasing pragmatism, mutual outreach and cooperation in pursuit of shared objectives (see for example this previous post).

Yet there is a long way to go in convincing policymakers and executives of the propriety and utility, respectively, of looking for appropriate, productive ways to harness the private sector's strengths in pursuit of greater public goods. This post on the lack of meat to back up recent rhetoric on cooperating with business makes the point, as does last week's post on policymakers' mindsets towards a business role in public health provision. In this sense, the Economist is right to conclude its report by saying that governments and business alike "should acknowledge the fact that they are partners not enemies".

Second, the report dwells on shortcomings of taxation strategies. In poorer countries, development policy will increasingly focus on taxation issues both in terms of financing development (governments) and as a strategy to foster more responsive government (donors). See here.

Third, the report calls (as that newspaper is wont to do) for less complex and convoluted regulation in order to stimulate productivity. This post argued that in stimulating business' capacity for virtue on social, enviro and governance issues in settings with low-capacity regulators, regulation that is based on broad principles rather than detailed codes may be preferable.  

Finally, the report considers the sometimes pervasive influence on government of corporate or sector lobbying. In many mid-income or developing settings, the same imbalances exist: parts of the business community either have too much access to government or too little. One challenge in feeling the way towards the ideal sustainable development equilibrium is to institutionalise effective, inclusive, responsive feedback loops between the public and private sectors, so that 'lobbying' is not a dirty word but a transparent, regulated part of the business of governing.

This is surely because in the social science of responsible business and responsive government, the microscope reveals that from cellular to system-level, the vital, fragile, organic and mysterious substance is trust: see here.

Jo

The Economist report is here.

Private sector, public goods: 'healthy partnerships'

The provision, financing and regulation of healthcare will be crucial if the best-case predictions of 'Africa Rising' are to be realised. Private providers may have a major role.

One key variable is whether public policy is open-minded enough to catalyse this potential -- beyond just the excitable rhetoric on public-private partnerships discussed in a previous post.

While some familiar patterns and problems persists, at least two broad shifts are underway in many settings. Many governments are ill-prepared for the first one, which is largely a function of demographic and economic trends: some long-term shift in aggregate disease burden towards non-communicable 'lifestyle' and diet-related diseases (such as Type-II Diabetes) associated with the 'new urban middle classes'.

The other broad shift is an increasing role for private funders and providers, not just in meeting the needs of high-income earners, but in mass low-cost, high volume goods and services, such as micro-insurance. As is true at many levels across the continent, considerable scope remains for innovative partnering, such as in Nigeria where the government piggy-backed on Coca-Cola's well-developed distribution networks to augment its own very poor distribution capacity in relation to spreading public awareness about HIV. There are public policy risks to such interactions, partner-picking and 'co-branding', but they are generally navigable.

Again as with so many things in sub-Saharan Africa's 40+ countries, there will be plenty of unevenness, with big variations within countries and as between different countries. One risk remains a growing quality gap between private and public healthcare, although some research (McKinsey) suggests that low-income groups in some countries make considerably more use of private, for-profit health services than is often assumed.

This is enough from me on the private sector and public health in Africa, since here in Oxford is a far more qualified commentator on the topic, Dr Serufusa Sikkide, whose recent blog post notes how being pro- the private sector's role in African healthcare is not necessarily an abdication of public-minded values and goals.

Implicit in Serufusa's post is that the most important shift in healthcare in Africa -- perhaps in its development more generally -- could be the mindset shift that looks to harness appropriate private sector contributions to the state's provision of public goods.

Jo

See here for a collection of some previous posts on related themes, and a recent FT article on a recurrent theme of this blog: the wider trend of engaging the private sector in development.

There is a lot of material on this topic. The issue of service-provision is somewhat distinct from public-private cooperation on healthcare goods, that is pharmaceutical products. There is a lot going on in that sphere.

See the IFC's 'Healthy Partnerships' report (2011) on how governments can engage the private sector to improve healthcare in Africa, and see here too (2012).

See here for the McKinsey report 'Healthcare in Africa: a vital role for the private sector', although now over 5 years old, and overview reports from well-known thinktanks, the reports linked here: WEF, CGD and CSIS

Finally, see here for some thoughtful contributions on the trade-offs potentially involved in increasing public engagement with the private sector in healthcare provision, albeit in South Africa, whose healthcare landscape is not analogous to most countries further north.