Multinationals and poverty alleviation, debating assurance standards and crunching microcredit’s numbers
CSR, Che and Latin America
“If you tremble indignation at every injustice then you are a comrade of mine.” So said Che Guevara, the iconic Latin American revolutionary and one-time Cuban economy minister. Historically, corporations in the so-called “forgotten continent” have inspired just such ire.
Over the past decade, however, Latin America’s private sector has helped contribute to above average economic growth. But while GDP rates have gone up (bar the recent recession), poverty rates have not come down. Trickle down economics have, with the odd exception (such as Chile), failed. More than 180 million people remain poor in Latin America, roughly a third of the total population. Brazil, the continent’s largest economy, remains its most unequal.
This paper maintains that poverty is not companies’ fault: quite the opposite. None of the arguments are rocket-science. Take employment. Statistics vary, but between 50% and 60% of working adults are reckoned to work outside the formal sector. A job in the formal sector is therefore seen as a “passport” to better prospects. Then there’s distribution. Latin America represents one of the world’s success stories for “bottom of the pyramid” marketing. The authors aren’t blind to their arguments’ shortfalls. Greater market access for the poor, they admit, doesn’t necessarily translate to affluence.
It is in this context that the paper’s subsequent discussion of corporate responsibility plays out. Some corporate programmes are world class. Mexican bakery firm Grupo Bimbo and Brazilian cosmetics company Natura provide cases in point. Yet in general the general picture is less dynamic. Joint action is required, the authors argue. The support of Brazilian companies for the government’s zero hunger campaign is held up as a model.
Though detailed diagnostics or strategic solutions are largely absent from this short paper, its general line of argument is clear and uncontroversial. Multinationals operating in Latin America will never be comrades of El Che. But better poverty alleviators they certainly could be.
“Corporate Social Responsibility and Latin American Multinationals” by Lordes Casanova and Anne Dumas, Insead, published in Universia Business Review, forthcoming.
Nitrous oxide emissions and lost-time accident rates never used to be part of accountancy’s lexicon. Now they are. Three-quarters of the global top 500 companies now produce sustainability reports. Roughly two in five of these call in the likes of PricewaterhouseCoopers, KPMG and Deloitte to put their stamp on such reporting.
Assurance buys credibility, according to this investigation into the determinant factors of auditor selection. Inviting in a big brand auditing firm shows sustainability reports are more than public relations pap. Covering your back provides a related motivation. Companies operating in high-profile sectors such as mining and finance are quicker than most to obtain an auditor’s seal.
Then there’s transparency. Some companies genuinely believe in it. That leads them to sign up to schemes such as the Global Reporting Initiative and other assurance obligations. Mandatory non-financial reporting is also emerging in some corners. Sweden and Denmark, for example, require companies to publish independently assured sustainability reports.
Most interestingly, the authors find evidence linking assurance provision to audit litigation risk. Higher audit litigation risk translates into increased assurance fees. That, the paper argues, may “discourage” companies. The example of US litigiousness proves the point.
This is not the first or last word on assurance. But given that assurance services are “still a far cry from traditional financial statement audits”, empirical research of this kind is welcome.
“A worldwide comparison of assurance on corporate social responsibility reports” by David Herda and Martin Taylor, University of Texas at Arlington, Working Paper, December 2009.
Microcredit’s data shortage
Microcredit is all the rage. Grameen Bank – the pioneering poor man’s bank of Nobel prizewinner Muhammed Yunus – has offered loans to more than 8 million people in Bangladesh. Direct beneficiaries extend to 40 million when family members are included.
Yet not everyone is convinced. For all the hubris, microcredit still needs to prove its mettle. The proof problem, in part, owes to inherent bias. Researchers tend to concentrate on clients who successfully take out loans. Mix up the study sample and the case is less clear. A recent paper by Massachusetts Institute of Technology did just that. A community-level analysis of 104 slums in Hyderabad, India, did not throw up a marked difference in economic and personal wellbeing between recipients and non-recipients of microfinance. A similar study of successful and unsuccessful loan applicants in Manila, capital of the Philippines, by Dean Karlan of Yale University and Jonathan Zinman of Dartmouth College was similarly inconclusive.
Microfinance is not about to be ditched. Judging the impact of micro-loans by control groups, as these studies do, is not perfect either. “Microfinance is too complex, its programmes too varied,” the paper says. But the onus is back on the microfinance industry. Good stories are fine for a while. Hard numbers are now what’s required.
“Microfinance’s Elusive Quest: Finding an Accurate Measure of Social Impact”, Knowledge@Wharton paper, December 2009.
Business school group Net Impact has published a new report about NGO opportunities for MBA students. “Bringing Business Skills to the Non Profit Sector” was published in January.
The Milgard School of Business in Washington, US, is to organise an inaugural academic research conference on corporate responsibility. Connecting Across the Disciplines will take place on July 15-16.