Smart businesses can see the financial upside of getting involved in effective disaster relief programmes

In the years that I have been involved in the humanitarian sector, and as corporate involvement in disaster response has grown, the question of why companies get involved in humanitarian actions has always interested me.

After all, no major corporation is in the disaster business – its business is soft drinks, pharmaceuticals, packaged groceries, telecoms or cars. And yet increasingly they do get involved.

But now a clear beam of light has been shone on this conundrum thanks to a report from the Centre for Strategic & International Studies (CSIS) based on K Street in Washington DC, which is as close to the centre of power as you can hope to get.

Author Stacey White has a solid history in the sector, having worked with Randolph Kent’s Humanitarian Futures Programme at King’s College London as well as with a range of UN agencies and NGOs.

What she has managed to tease out in Corporate Engagement in Natural Disaster Response – Piecing Together the Value Chain is both the scale of corporate involvement (in the US, but that is a good proxy for the rest of the developed world) and the reasons for that involvement. Interested readers can download a copy of the full report here.

As far as the reasons are concerned, there’s a major clue in the sub-head – it’s all to do with the value chain, which really means that it is all to do with marketing. That may seem blunt, harsh even, and there is a wider truth behind it to do with concepts of global citizenship and what she describes as “an expanded understanding of the roles and responsibilities of business in a fully globalized society”.

Marketing-based decisions

But a lot of the evidence that she has pulled together suggests that marketing – the development and support of customers, markets and brands – plays a very large part in decisions about whether (and to what scale) companies respond in the wake of natural disasters.

She looked at five recent major disasters – the Indian Ocean tsunami (2004), the Kashmir earthquake (2005), the Sichuan earthquake (2006), the Haiti earthquake (2010) and the “Great East Japan” earthquake in 2011.

Take first her comment on responses to the Sichuan earthquake, where the Chinese government had no major need for outside help but, “corporate engagement was intense … with American-based companies competing to make humanitarian donations, and in the process, hoping to leverage brand recognition and customer market bases in China”. She goes on, “corporate donations for this disaster are viewed to have been widely driven by commercial calculation rather than by acute humanitarian concerns”. The result here was that American companies donated $110m to China whereas the US government only put up $5m.

When it came to the Japanese earthquake and tsunami there was a very similar pattern of response. Strong Japanese consumer markets where US companies have established and valuable interests led to what Stacey White describes as “robust” corporate interest in responding to the disaster.

In Kashmir, on the other hand, where there is limited presence for American companies, and the political situation with Pakistan and Afghanistan is more complex, there was a much lower level response.

Moral concerns?

If corporate-driven disaster response can be reduced simply to whether or not there is market advantage, then clearly any “privatisation” of humanitarian action is going to throw up some major moral concerns. Somalia, Chad, Niger, Cambodia and Burkina Faso are not major markets for the world’s leading corporations, yet they all rank highly in the list of actual or potential sites for disasters.

There are already issues in the humanitarian world with the low level of response to natural disasters that don’t make it onto CNN – of which there are many and for which the wallets of Mr & Mrs Public, not to mention their governments, remain firmly closed. If corporations are going to respond based on their commercial interests on the ground, then this problem will be further compounded.

And, to be fair, there’s really no reason why companies should not think in this way. They are in business, after all, to serve the interests of their various stakeholders – shareholders, employees, suppliers, customers. Putting money into, say, helping the victims of flooding in the Central African Republic, doesn’t do a lot for any of these groups.

Governments tend to be driven, in part, by popular pressure when it comes to the scale of their response, and popular pressure tends to be generated by TV news coverage. Interestingly, White found that these pressures did also have an impact on corporates when it came to the Haiti earthquake: “Despite the fact that few companies had a market interest in Haiti, American businesses became heavily involved in the response due to the scale of destruction and concomitant pressure by employees to act.”

But the level of donations to Haiti was a lot lower than for the Indian Ocean tsunami or the Japan earthquake – driven in part by a lack of faith in Haitian government institutions and related fear that any funds donated might be mis-used.

So the position that companies take is slightly more complex than straight commercial advantage, but it is clear from White’s work that the central driver is market presence and marketing benefits.

Substantial donations

The other area where she has done excellent work is in establishing the level of donations by corporates. And the numbers are, in many cases, substantial as the table below shows.

 

Disaster Donors Size of contribution
Indian Ocean tsunami 2004 Pfizer >$45m
  Coca-Cola $20m
  General Electric $20m
  ExxonMobil $11m
     
Sichuan earthquake 2008 Cisco >$45m
  Coca-Cola System $15.6m
  Procter & Gamble $7.6m
  Johnson & Johnson $5m
     
Haiti earthquake 2010 Jeffries Group $14.5m
  Teva Pharmaceuticals $7.5m
  Becton Dickinson & Co $5.5m
     
Great East Japan earthquake 2011 Coca-Cola $33m
  Hitachi $9.4m
  NCsoft $6.3m

Source: Centre for Strategic & International Studies report on Corporate Engagement

On these figures, Coca-Cola and its distributors have given nearly $70m to three recent disasters, which is a lot of money.

However, it should also be noted that Coca-Cola’s advertising budget in 2011 was reported to be nearly $3bn. So, if disaster response is to be viewed as an arm of the marketing department, it only accounts for 2.5% of the overall ad spend, and this advertising spend supports worldwide soft drink sales of $28bn.

What is clear is that companies, unlike governments, have little obligation to respond to any given emergency. Whether they do or not will depend on a number of factors including the financial strength of the business, internal and external pressures from the media, employees or governments, recommendations from local operating companies, and what other companies are doing.

Coordinated response

Ever since the Indian Ocean tsunami highlighted the potential chaos that is generated when thousands of well-meaning organisations all respond at once to a major emergency, there has been a growing emphasis on coordination. Adding major companies into the mix – as increasingly seems to be the case – brings benefits as well as increasing complexity. And a further degree of uncertainty for the governments and UN agencies generally charged with being the leading agents in disaster response.

This cannot be a good thing, and whatever the motivation for corporate involvement, White’s main recommendations are that a lot more planning should be put into both disaster preparedness and disaster response.

And, for the companies themselves she has a warning, “Because disasters affect global markets, they are altering the ways in which companies operate. In an increasingly hazard-prone future, disasters will be a major aspect of risk management, and companies will need to invest in ensuring the resilience of consumer markets and the security of production and supply chains to remain competitive”.

So it looks as though corporate involvement in responding to – and planning for – natural disasters is likely to increase rather than diminish.

Howard Sharman is a senior consultant with Advance Aid.

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