When will corporates become accountable for the social wellbeing of communities they serve?
by: Alex Milovanovich
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Summary:
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The current philanthropic nature of Corporate Social Responsibility needs to change to Accountability. Corporates should focus their Social Impact Scorecards on measuring achievements and tangible improvements not only in pollution control but also in public health (physical and financial), education, waste reduction etc.
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We all know that the main accountability for companies is to their shareholders who demand ongoing growth in dividends and revenues which transfer into ever growing share prices. Corporate executives are therefore under constant pressure to deliver on those two measures. But how far can they go in inventing strategies and business models that suit this purpose? Obviously, one needs to oblige with all kinds of legislation – from criminal to financial reporting. But what if you stay within the legislative parameters but recklessly chase growth opportunities on the expense of your community, a nation or a whole world.
Corporate Social Responsibility is currently philanthropy driven. However, there has been more pressure lately on corporates to become involved in protecting the environment. Partly thanks to al Gore’s movie. Some governments have introduced laws which limit pollution (e.g. exhaust emissions) and models that discourage it (e.g. EU credit system) a long time ago. Others are still reluctant to follow as they worry about the impact on their GDP-s. Are they right? Are they helping their economies or irreversibly passing the advantage and leadership to those who are proactive in this area.
We all witnessed in recent years the housing boom in the western world. It was enabled by financial institutions which provided thousands of unsecured loans to home buyers for the ‘rightful purpose’ of creating growth and jobs in the economy (the reason governments have turned a blind eye, hoping for the best), never mind their profits and growth. Take South Africa for example. We copied the US recipe and our banks lend money without proper assessment of borrowers’ credit worthiness and without asking for any deposit. A couple of years ago you could just walk in to a bank with the sales offer from a reputable estate agent and a letter from your employer stating your supposed income. Good enough to provide you with a million rand loan. Few days ago I read in a reputable financial magazine that 10% of recent sellers received less than the prices they paid for their homes. So those South Africans will have to repay the outstanding balances and carry the financial burden for a long time, even for the rest of their lives. The US laws differ in this matter as banks and not borrowers have to do a write off. US has swallowed Bear Sterns collapse but what will happen if Freddie or Fannie shake with their combined $5.2 trillion in assets. Assumption is that at least 20% of this is unsecured i.e. can turn into bed debts. That’s a trillion dollars! Millions of people will lose their homes and possibly jobs. US Government will need to extend its borrowing to a level where it creates capital consequences to the wellbeing of its economy and people. Have you heard if any corporate or a director is held responsible let alone accountable for what happened?
I believe that it is the right time for the introduction of Corporate Social Accountability as part of corporate governance legislation. A scorecard has to be developed in order to measure actual impact on the communities and markets. Scoring will cover the resulting outcomes of corporate activity and how it impacts the social, health and environmental well being.
Every person must be responsible for his/her own well being. But if somebody takes the advantage of my dream to become a proud home owner and lend me money to buy a house I can not afford, then that one must at least share the blame and consequences. In the case of the credit crunch more state involvement is necessary which means more regulation like it happened in South Africa (Credit Act). At the end, 10 years ago you could only dream of borrowing for a home without at least 10% deposit. This may sound to you as anti-market talk but if half of the world has to go into a recession compared with reduced growth over the limited period I will always go for lower growth and stability.
Corporates must guarantee communities rights over the resources they need to enjoy a healthy and sustainable life. Therefore state must place a duty on directors / require corporations to meet best environmental, social, labour and human rights standards. I see future corporates being responsible for the development of communities and markets they serve. They will focus those Social Impact Scorecards on measuring achievements and tangible improvements not only in pollution control but also in public health (physical and financial), education, waste reduction etc.
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Author Details:
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Alex Milovanovich
African Performance Specialists
alex@africanwizard.co.za
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