The real question is not whether countries need CSR strategies, but how to develop and implement them, as it is absolutely necessary to bring together both the public and business sectors in addressing complex social and environmental challenges and opportunities — argues Djordjija Petkoski, an internationally known CSR expert who is now associated with Takamul, the national project for CSR. However, governments should be very careful with imposing CSR tax, which seems to be easy way out but not necessarily best way to engage with the business sector, he added.
It’s time for Saudi Arabia to position itself as CSR knowledge hub in the South-South knowledge exchange. There are areas where the Saudi corporate sector has accumulated enough relevant knowledge that can be shared with other countries. This can help branding the country and its companies abroad. At the same time, it is very important to keep in mind that more and more Saudi companies are operating and investing abroad, and thus becoming subject to more scrutiny from influential international players, including global competitors, government agencies, and media outlets, Petkoski told Khalil Hanware of Arab News in an exclusive interview in Jeddah.
Following is the text of the interview:
Do countries need CSR strategies?
The real question is not whether countries need CSR strategies, but how to develop and implement them, as it is absolutely necessary to bring together both the public and business sectors in addressing complex social and environmental challenges and opportunities. Today across the world, 1.3 billion people have no access to clean water; 3 billion have no access to sanitation; and 2 billion have no access to electricity. These challenges can’t be solved by governments alone. Sometimes what governments consider as a challenge, is an opportunity for companies. For example, the recent Jeddah Economic Forum talked about the housing issue. The problem for the government is how to provide houses to meet the growing demand and pressure from the society. At the same time, there are opportunities for companies to expand their business operations by building affordable houses. By bringing the public and the business sectors together, it's much easy to come up with innovative and sustainable solutions.
How can Saudi cities become smart cities?
Let me comment on a few issues that make cities smart:
• Need for a holistic approach
A holistic approach helps to fully appreciate the complex challenges that cities are facing in the increasingly globalized world with limited resources. For example, the housing problem cannot be effectively addressed without critical connections to transportation, a more efficient financial system, financial literacy, job creation, skills development, health, environment, etc. For example, a more proactive and integrated engagement with environmental issues can help avoid problems such as those publicized in China, where one recent estimate put the cost of environmental degradation in China in 2010 at around $ 230 billon, or 3.5 percent of national GDP. A holistic approach also helps in creating a platform or even platforms for the key stakeholders — public and private players — to act together. Acting together does not necessarily mean more coordination or centralization, it means being more complementary.
• The second issue regarding smart cities is competitiveness.
Competitiveness is a base for the holistic approach to bring together the key stakeholders. Smart cities should create necessary conditions — a supporting ecosystem — for companies to become more competitive thus leading to increased productivity and wellbeing of the communities. Without enhancing competitiveness the whole process of multi-stakeholder engagement can't be sustainable. The third issue is good governance: Transparency, accountability, and competition policies. Good governance is the most important ingredient for policies that create an ecosystem that allows progressive and competitive companies not only to thrive in the city but to become national and international leaders. For this, a sound competition policy is a must. Without fair competition there is no innovation. Sometimes, even the most sophisticated companies fail this test. Recently, the European Commission imposed a 561 million-euro fine on Microsoft for antitrust violations. Similarly, due to corrupt activities in 2007, Siemens paid $ 1.6 billion in fines and profit disgorgement to US and German authorities, as well as $ 850 million in related legal fees.
• Finally, smart cities need to support innovation.
Innovation through (1) integrating best global practices within the unique national circumstances and the smart cities in particular, (2) human capital development, especially linking educational outputs with realistic market needs and (3) cross sectorial and cross generational engagements, which bring us back to the necessity for a holistic approach.
Of course, smart cities can't be analyzed in isolation. It is necessary to better align national priorities with what companies can best contribute to, as part of their core competences, corporate strategy, and CSR activities. The objective is to make smart cities true growth poles and engines of sustainable development and knowledge based economy for the whole country.
What makes the Saudi approach to national CSR strategy unique?
A. First, the focus is on the process of creating and implementing a strategy, which means bringing together the public and private sectors to come up with solutions that are most relevant to the country. In other words, it is not about writing a strategy. Usually countries hire reputable international consulting firms to write the strategy for them. That will end up with a book, a project that will never be implemented. Business people appreciate the fact that developing a strategy is only 10 percent of the process, the remaining 90 percent is strategy implementation. Another unique feature is that the public and business sectors get engaged together from the very beginning of the process. In the case of other countries, unusually, governments write the strategy and then impose it on the business sector, in some cases even introduce CSR taxes. Third, implementation starts with pilot projects in order to test innovative solutions and if that works than you scale up the solutions — learning by doing.
Is having a national CSR strategy good only for domestic use or does it also have international importance?
Yes, it definitely has international implications. This can help branding the country and its companies abroad. At the government level this strategy can be used to share the learning process from developing and implementing the strategy with other governments. This is one way for Saudi Arabia to engage in the so-called South-South knowledge exchange with other governments. From a corporate perspectives, major Saudi companies can also brand themselves as responsible entities, both to create shareholder value and to address the needs of the other stakeholders — a positive-sum gains for all. It is very important to keep in mind that more and more Saudi companies are operating and investing abroad, and thus becoming subject to more scrutiny from influential international players, including global competitors, government agencies, and media outlets.
Does it mean that Saudi Arabia should also position itself as a knowledge hub in the South-South knowledge exchange?
Definitely, there are areas where the Saudi corporate sector has accumulated enough relevant knowledge that can be shared with other countries.
What would be the first step for Saudi Arabia to make this happen?
Well, the first step is to properly capture the knowledge that will be shared with other countries. This will bring double benefits. In the process of capturing the knowledge, companies can reflect on what they are doing and explore possibilities for improvement. Furthermore, knowledge exchange doesn't mean only giving knowledge to others, it also means that in the process you benefit from others’ experiences. Such direct knowledge exchange also eliminates the need for ‘a middleman’, who is usually an international consultant or a development agency, with its own interpretation of what is relevant knowledge and best practice.
This sounds very easy. What challenges you see in making this happen?
A. First is to identify progressive Saudi companies, which are interested in sharing their knowledge. Second, to write good case studies that properly capture the knowledge that will be shared. Third, it also means developing local capacity to implement, scale up, and disseminate knowledge and learn more. I am referring not to passive learning but action-oriented learning. These case studies should help practitioners to develop specific actions plan for implementation.
What is the role of young people in implementing CSR strategies?
They need access to cutting-edge international knowledge and best local practices, which means that CSR should become an integral part of school curriculum, particularly in business schools. Many companies are still facing big challenges of how to incorporate CSR in their business strategies. For that they need managers with the latest knowledge in this field. As more graduates become equipped with this knowledge, it will be easier for companies to integrate CSR into their corporate strategies and become more competitive. However, these issues are too important to be left to the schools alone. Companies need to find more innovative approaches to directly engage with young people. For example, youth unemployment is a growing problem globally. Productive engagement of youth that creates new opportunities for them can have a multiplier effect — reduced gap between the skills that the young have and job requirements, additional wealth creation, increased entrepreneurship and innovation, higher education levels, etc.
The number of low income people is increasing around the world and is estimated to be over 4 billion. Based on your recent article in Harvard Business Review, will they benefit from CSR?
Yes, provided companies use CSR to come up with innovative products and services for low income people. This should not be seen as only a way of selling their new products to low income people but also creating job opportunities for them. For example, low income people can be producers or the new sales force for these products. Furthermore, this can stimulate the development of small and medium enterprises and hybrid business-social entrepreneurship, thus creating new job opportunities.
Is there a hidden danger for this approach?
Yes, particularly if the focus is on seeing them primarily as consumers. There is an additional task for consumer protection agencies and even the media to make sure that low income people are not misled by unethical marketing. For example, in the case of financial products, such as micro finance, one way of protecting the low income consumers is to improve their financial literacy.
You led several global collective action initiatives to address complex development problems.
Harvard Business School wrote a case study on your leadership role in bringing together leading multinational food companies to deal with malnutrition. What are the lessons learned?
One company on its own can only have a very limited impact when dealing with complex issues such as malnutrition. Collective action means bringing together the most progressive companies to join efforts in addressing these issues. In the case of malnutrition, the initial driving force was the Bill and Melinda Gates Foundation which was later supported by a coalition of leading multinational companies. In the case of fighting corruption, it is important for companies that do not want to bribe to join efforts to make the business transactions such as public procurement as transparent as possible, so that corrupt companies don't get the contracts. And this is very important. Recent studies indicate that each year, over $1 trillion is paid in bribes globally. Corruption is estimated to cost $ 2.6 trillion annually, an amount equal to more than 5 percent of global GDP. Corruption adds up to 10 percent to the total cost of doing business globally, and up to 25 percent to the cost of procurement contracts in developing countries.
