Drive down a typical highway and you'll see a succession of billboards, each one a stand-alone advertisement for a single brand. Watch a Grand Prix race, on the other hand, and you note a different approach: every car carries a multitude of brands. These complicated, high-performance machines are expensive to build and maintain. With just one sponsor, a car wouldn't amount to much.
Now think about how companies approach their community development and CSR programs. Much like billboards, today's community-oriented efforts are undertaken independently, and proudly associated with single company names. What if companies thought of community programs more like Grand Prix cars? What if they recognized the vast support communities often need, and partnered up to provide it? Presumably it would serve the communities better if CSR programs adopted the Grand Prix rather than the billboard model. Probably it would also be more profitable for the firms.
My company is in the resource extraction business, and it has known for a long time how these two things, communities and corporate interests, can go hand in hand. My company understands that we do not operate in a bubble.
In some parts of the world government mismanagement of community development (deliberate or otherwise) has led to civil strife, sometimes resulting in armed conflict, creating a security scenario where business simply cannot continue to operate. Even when peace has returned, post-conflict nationalization has been seen in many countries, with business losing billions in operational assets. Looking at history, business cannot afford to be not interested in community development. A company simply has too much to lose if things go wrong.
Increasingly, we've seen other companies recognize equitable community development as a critical business activity to reduce risk. This is a major change. In decades past, it would not have been uncommon for business leaders to say that it is a government's responsibility to ensure long-term sustainable economic growth for a community, and that a company's contribution would be through tax, employment, and royalties. Move forward to 2012, and those days are long gone. Most now recognize that business can't legitimately claim that socio-economic development is not a business concern.
At this point, some companies are looking beyond the risk-reduction argument, and seeing in equitable community development an opportunity to grow "shared value." The term was coined by Michael Porter and Mark Kramer, and reflects the view that business and community interests can be in sync. In particular, Porter and Kramer argue that businesses should search for those opportunities where value can be created for business by improving community well-being.
BHP Billiton (NYSE:BHP) for example ran a very effective anti-malaria program around Mozal, Mozambique where it has an aluminum smelter. This program reduced adult malaria infection from near 80% to a single-digit percentage. This is a huge win for the community, but also note its impact on BHP's bottom line. The reduced absenteeism associated with this improved community health so increased the productivity of assets that the direct returns more than covered the cost of the program. The anti-malaria program in Mozal was profitable.
The Australian based bank ANZ (OTCPK:ANZBY) offers another example as it expands throughout the Asia Pacific. Its community development work in places like Fiji, American Samoa, and the Cook Islands focuses on financial literacy training programs. Cynics might well say that in educating people about the workings of small business loans or mortgages it is just expanding its market. On the other hand, who could deny that better informed people are more able to benefit from services we take for granted in the developed world? What is wrong with prospering along with a community empowered by greater skills in budgeting, saving, and money management?
Neither of these cases should be viewed as corporate philanthropy; both are investments with returns to community and the business's owners being measured and celebrated. The contribution that Porter and Kramer make with their "shared value" concept is that it legitimizes such investments-community work motivated by considerations of what is good for business, and not just the work motivated by philanthropic altruism.
Rio Tinto (OTCQB:RTPPF) is now the majority shareholder in the Development of the Oyu Tolgoi mine in Mongolia. When fully operational, this mine promises to account for somewhere between a quarter and a third of the GDP of Mongolia. Rio Tinto does not think that economic, community, and social development is none of its business. The successful expansion of Rio Tinto Copper is intertwined with the economic development of Mongolia and its people.
Back to the Grand Prix analogy. With so many companies now focused on community development, could we see more in the way of partnership? In other realms of economic activity, we see collaboration between non-competitor businesses as a path to improved shared profitability. Is there any reason we should not see it in community work?
Let's say a company is developing a new mine in a community that has seen little development. The resource company recognizes that the huge boost to economic activity will raise many challenges. Towns need to be built, and the influx of workers needs to be managed. As money moves into an economy that had little reliable money supplies, let alone banks, people need to be equipped to handle it. Should a resource company try to engage with all these problems relying on just itself and the government? It might think to partner with NGOs or UN agencies. But what about other companies?
The Grand Prix model might suggest to the resource company that it could contact a community-minded bank like ANZ, point to the potential of the community, and encourage it to invest there, too. The community would then benefit from the first company employing and paying staff, and the second one accepting deposits, providing training, and extending credit as appropriate to those who could use it to build wealth. Why not then encourage a third company, a health company, to serve the growing healthcare needs of the community in a shared value mode-that is, setting goals and measuring outcomes for the community as well as setting itself up to operate profitably?
If companies join forces to build communities, rather than trying to go it alone, communities are better served. When benefits are wholly dependent on one party's continuing commitment, they are at the mercy of any catastrophic event that damages that party. Billboards can topple in a storm. With more partners comes more stability. Communities grow healthier and more productive, and progress comes on many fronts. The companies on board benefit, too, from the faster progress that comes with shared commitment-perhaps not as fast as a Grand Prix car, but at least as exhilarating.
Disclosure: I work for global mining giant Rio Tinto. I am long RIO, BHP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.