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“But companies that have long given money to nonprofit organizations increasingly realize they can get more bang for their buck. Increasingly, firms are forging long-term partnerships with them and looking for ways to create mutual benefit. Companies bring hard-nosed business savvy to social-welfare projects. But they also get help from their new partners with challenges like negotiating the minefield of public opinion.

An example of the new approach is Merck’s $100 million (108.3 million euros), five-year AIDS-fighting effort in the Republic of Botswana, where 29% of the adult population is infected with the AIDS virus, HIV. The U.S. pharmaceutical firm was convinced that AIDS drugs such as its own Crixivan do little good in Africa. Health care is spotty and infectious diseases such as tuberculosis and pneumonia, to which AIDS-weakened individuals are particularly vulnerable, run rampant.

Merck’s conclusion was that only a far-reaching makeover of the health-care system has a chance of beating back the deadly disease. The magnitude of such an undertaking made partners essential. Merck linked with the Bill and Melinda Gates Foundation, which pledged $50 million, and with the Harvard AIDS Institute. It also attracted other companies, such as Unilever PLC, which will contribute distribution know-how and help shape AIDS-awareness campaigns. Merck officials met with Botswana’s president, Festus Mogae, last July to stress their desire to shape the program jointly with the nation’s health agencies.

“If you have all the antiretroviral drugs in the world, you can’t get them to people if all the other systems aren’t in place,” says Dr. Banu Khan, Botswana’s national AIDS coordinator.

The partners are still mapping their strategy. But already there are plans for a nationwide HIV training program for doctors, nurses, and counselors, as well as building modern diagnostic labs in remote areas of the nation of 1.6 people. If the project succeeds, it may serve as a model for similar efforts in other countries.”

January 29, 2001 [WSJ.com]

In Shift, Multinational Corporations Look

To Address Developing World’s Problems

By DAVID WOODRUFF

Staff Reporter of THE WALL STREET JOURNAL

Last year, Royal Dutch/Shell Group invested $200,000 (216,509 euros) in a project to make electricity from coconut shells in a remote village on the Philippine island of Palawan.

World Economic ForumThe Anglo-Dutch energy giant also bankrolled a factory to make soap, netting and other products from the locally abundant fruit. Shell says its goal isn’t to turn a profit. Rather, in partnership with the Philippine Coconut Authority and U.S.-based Community Power Corp., the company aims to raise locals’ standard of living.

Weary of its role as a whipping boy of the antiglobalization crowd, the company that spawned the Brent Spar fiasco and was charged with abetting violence in Nigeria is trying to make social welfare part of managers’ everyday strategic thinking. Last summer Shell launched a foundation to oversee projects that range from gleaning energy from pig slurry in China’s Hunan Province to helping Brazilian oyster fishermen increase the value of their catch.

“In the future, the successful companies will be those who work hardest to make sure that they are in tune with the needs and aspirations of society,” Mark Moody-Stuart, Shell’s chairman, said in a speech last July at the World Congress of the International Society of Business, Economics and Ethics in Sao Paulo, Brazil. “Society does not end at the company gates or the office car park.”

Such open soul-searching is good public relations. But it also illustrates a surprising trend: Companies are rethinking their role in society. In a world where governments, the traditional guardians of social welfare, face tight budgets and wield less influence, powerful corporations increasingly are filling the vacuum. Under intense scrutiny from consumers, they’re tackling some of humanity’s prickliest conundrums, such as how to reduce poverty, or how to stem Africa’s devastating AIDS epidemic.

They come armed with more than their checkbooks. Forward-thinking multinationals such as Shell, Merck & Co. and International Business Machines Corp. are redefining what it means to be a good corporate citizen. The professional management techniques many companies perfected over the last decade to address environmental issues are being extended to social welfare. In an approach some call “strategic philanthropy,” they increasingly strike strategic alliances with nonprofit organizations.

“This old notion that there was a trade-off between creating social value and generating shareholder value is being discarded,” says James Austin, head of the Harvard Business School’s initiative on social enterprise. “Business leaders are no longer looking at philanthropic donations as pure charity, separate from their business activities.”

Make no mistake, corporations’ main mission remains maximizing profits. Moreover, how far companies should go toward promoting social good remains a matter of intense debate.

But companies that have long given money to nonprofit organizations increasingly realize they can get more bang for their buck. Increasingly, firms are forging long-term partnerships with them and looking for ways to create mutual benefit. Companies bring hard-nosed business savvy to social-welfare projects. But they also get help from their new partners with challenges like negotiating the minefield of public opinion.

“If you have all the antiretroviral drugs in the world, you can’t get them to people if all the other systems aren’t in place,” says Dr. Banu Khan, Botswana’s national AIDS coordinator.

Today’s socially conscious companies are as motivated by good business sense as they are by altruism. For one thing, consumers are increasingly keen scrutinizers of corporate behavior. In a 1999 survey of 25,000 people in 23 countries, two-thirds of respondents said they want companies to go beyond their traditional role of making money, paying taxes and employing people to contribute to broader social issues. In the same poll, sponsored by the Prince of Wales Business Leadership Forum and the Conference Board, 20% of consumers said they either rewarded or punished companies in the prior year for their performance in the social arena.

A just-completed follow-up survey found that 41% of U.S. respondents said they discussed the ethical or social behavior of companies “many times” last year, up from 24% in 1999. Moreover, 28% of Americans who owned stock said a company’s demonstrated social responsibility had influenced their investment decisions.

The cost of botching social questions can be painfully high. It’s a lesson that many companies learn the hard way.

Take Shell. In the early 1990s, activists in Nigeria complained that the company’s oil production was damaging the environment. Nigeria’s military regime brutally put down protests, which were organized mainly by members of the Ogani ethnic group. Celebrated writer Ken Saro-Wiwa and eight others were arrested in 1994, found guilty of murder by a military tribunal and executed.

Human rights activists said the executions of what became known as the “Ogani Nine” were unjust. They charged Shell with aiding and abetting government repression. They organized a world-wide consumer boycott of the company. Then last year the Center for Constitutional Rights in New York filed a lawsuit there on behalf of the writer’s brother, Owens Wiwa, and two other Nigerian emigres charging Shell with complicity in the deaths of Nigerian activists.

The company denies the charges. However, Shell’s attempts to get the case thrown out have been unsuccessful.

The growing pressure on companies to do right is having an impact all the way up to the board room. Of the corporations surveyed by the Boston College Center for Corporate Community Relations in 1999, 35% said their boards included a committee or subcommittee devoted to issues of corporate citizenship. That compared with just 18% in a similar poll two years earlier.

Moreover, companies increasingly are looking for guidance on how to be good citizens. The Boston College Center, which organizes programs to provide such practical advice, has seen its membership jump 75% in the last five years, to 350 companies. Members include UBS Warburg, Ford Motor Co. and Telefon AB L.M. Ericsson.

The expectation that business should pitch in is likely to grow. A global trend toward streamlined government means public resources are shrinking. In Europe, for instance, the welfare state is being pared back as the euro fosters greater competition and governments are forced to cut taxes. In the developing world, public coffers and government officials are overwhelmed by the magnitude of major problems such as the AIDS epidemic.

At the same time, corporate profits have soared. In the U.S. over the past decade earnings have quadrupled, according to Solomon Smith Barney. In Europe they tripled over the same period.

Proponents of strategic philanthropy say the approach needn’t cost companies more than existing charitable giving. But the payoff can increase. IBM has focused its efforts on primary and secondary education and on closing the digital divide. As part of a program to provide hardware and software to needy schools, the company sometimes tests new products.

The benefits can be more sweeping, as well. For instance, companies with a reputation as good citizens have an easier time attracting and retaining talented people. That can be a key competitive advantage in a world where good managers and technicians are in short supply.

Multinational companies that undertake social projects in the developing world are making a long-term investment in their brand image there. Consumer-products companies in particular are likely to benefit as growth accelerates in those regions.

Tackling high-profile social problems can present special challenges. One common hurdle is overcoming mistrust of big corporations. Governments, nonprofit organizations and consumers often assume that companies have hidden motives. To gain legitimacy, firms look to partner with nongovernment agencies that are above reproach.

That’s not always easy, especially when their past relationship has been an adversarial one. That was the case when forest products company Georgia-Pacific Corp. linked up with The Nature Conservancy in the mid-1990s to jointly manage environmentally sensitive woodlands in the eastern U.S. The former enemies came together by forging common goals, says Harvard’s Mr. Austin, who has studied their partnership.

Doing good deeds in the developing world can be particularly tough. Gauging the political climate is often difficult for outsiders, as Shell discovered in Nigeria. There are few local nongovernment organizations for companies to work with. And Western executives who parachute into foreign lands with a know-it-all attitude can quickly make enemies rather than friends.

That’s partly what happened to U.S. drug maker Bristol-Myers Squibb Co. after it launched its own program to fight AIDS in Africa in 1999. Officials in some African nations felt Bristol-Myers was throwing its weight around and ignoring local concerns about how the program was run. Now, instead of being hailed for its social activism, the company has become a lightning rod for public criticism.

“Big international companies usually have a preset notion of what needs to be done,” says Richard Marlink, head of the Harvard AIDS Institute. “But all of us are guests in these areas. The solutions to these problems have to be led by the people most affected by them.”

Write to David Woodruff at david.woodruff@wsj.com

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