March 24, 2013

Corporate Social Responsibility – A Viable Tool for Sustainable Development in the MENA Region

Although corporate social responsibility is a relatively new concept for the Middle East, Booz & Company’s in-depth research illustrates how this complex undertaking can significantly contribute to regional development

Sustainable economic development in the Middle East and North Africa (MENA) will depend on job creation, education, poverty alleviation, and careful environmental management. While government, civil society organizations, and academic institutions should all be involved in this effort, companies have a particularly important role to play. They must be involved and contribute to the betterment of the societies in which they operate. And, they can do this through corporate social responsibility (CSR) initiatives that align with national development objectives. In line with this, Management consulting firm Booz & Company has conducted extensive interviews – and drawn on its work with CSR leaders in the Middle East – to define what CSR means in the region; study how CSR is practiced; identify best practices among CSR leaders; and, propose how to build the corporate capacity for sustainable CSR practices.

Sustainable Development – A Strategic Imperative

Governments, private companies, civil society organizations, and academia will need to coordinate and commit themselves to sustainable development if the MENA region is to achieve its economic potential.

“Corporate leaders and government officials interviewed in our study most frequently cited the need for robust job creation to nurture economic growth and spread benefits among the population as the most salient issue,” said Ramez Shehadi, a Partner with Booz & Company.  “Today, half of the region’s population is under the age of 25 and there is widespread unemployment. The task ahead is formidable.”

Indeed, the World Economic Forum estimates that, to keep employment at 2011 levels, the region needs to create 75 million jobs by 2020 – a 43 percent increase on the number of jobs in 2011.

Moreover, job creation is not the only aspect of sustainable development that leaders must confront. There is also the environmental impact of a growing population and increased economic output on a fragile ecosystem. The Arab states have over 60 percent of the world’s oil reserves, but only 0.5 percent of its renewable fresh water resources. Consequently, most countries in the region suffer from severe water shortages, waste management and poor air quality.

“The scope of these sustainable development challenges demands a high level of attention and coordination between the region’s most powerful stakeholders,” explained Salim Ghazaly, a Principal with Booz & Company. “In particular, the region’s companies can play a critical role by establishing CSR initiatives.”

The European Commission defined CSR in 2002 as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” Today, CSR needs to become a mainstream corporate principle in the MENA region. And, as major stakeholders in these countries, companies have a responsibility to foster sustainable development and improve the societies in which they operate.

Building a CSR Agenda

In the MENA region, CSR activities have increased over the past decade. Unfortunately, however, companies in the MENA region rarely align their individual CSR initiatives with national development priorities. As a result, their CSR projects have insufficient impact. To bridge this divide and to improve CSR as a discipline, companies and governments should follow a four-step process:

1. Define CSR for the MENA Region: Citizens in developing and developed countries have different ideas of what CSR work should accomplish. According to research from the Corporate Social Responsibility Monitor, citizens in developed economies tend to expect companies to focus on “core corporate issues”. By contrast, citizens in developing countries expect companies to address national problems.

Adding to the challenge of defining CSR in the MENA region is the dispute over the term itself. Some MENA corporate leaders interviewed by Booz & Company dislike the label CSR; they prefer to talk of “corporate responsibility,” “corporate philanthropy,” “corporate citizenship,” or “the business contribution to sustainable development.”

All this reinforces the understanding that the local economic and cultural context is critical if CSR is to contribute to national sustainable development goals. A regional definition of CSR must encompass the internal policymaking and operational decisions of companies, while also taking environmental issues into account.

2. Study Current CSR Activity: One clear sign that CSR in the region is gaining momentum is the number of companies that have joined the UN Global Compact – a strategic policy initiative for businesses committed to aligning their operations and strategies with 10 principles in the areas of human rights, labor, the environment, and anticorruption. The list of signatories from the MENA region has grown from just three in 2003 to 262 by the end of 2012.

“In our research and interviews with executives, we found that CSR is practiced in different ways by the various types of companies in the region: state-owned enterprises (SOEs), small and medium-sized enterprises (SMEs, including family-owned businesses), multinational corporations (MNCs), and social business,” remarked Dr. Mounira Jamjoom, a Senior Research Specialist at the Ideation Center, Booz & Company’s think tank in the Middle East. “Understanding how each one approaches CSR today is a critical step to aligning CSR initiatives in the future.”

  • SOEs: Given that SOEs have close relationships with the government and are often among the best-run companies in the country, they can lead by example on many CSR issues.

  • SMEs: SMEs tend to be closer to their communities, and these strong ties help them stay in tune with local needs and demands. Their autonomy allows flexible decision-making to implement CSR as they see fit.

  • MNCs: Multinational firms are generally keen to transplant their CSR guidelines and operating policies to their subsidiaries overseas, in part to overcome the possible bias against foreign companies. Although their tendency is to manage CSR from the top down, some MNCs are starting to give greater autonomy to their MENA subsidiaries to plan local efforts and engage in grassroots community actions.

  • Social Businesses: Over the past few years the region has seen the proliferation of “social businesses,” a new hybrid of conventional business and charity. A social business focuses on social missions, making them a priority over all aspects of operations, even profits.

3. Identify CSR Best Practices: Booz & Company has identified six best practices for designing a CSR program that aligns with national development goals:

  • Engage senior leaders: For CSR initiatives to succeed, senior leaders must be visibly engaged and active in steering the company’s CSR strategy both internally and externally.

  • Strengthen Corporate Governance: Good corporate governance – particularly enhanced transparency around business decision making – makes internal and external CSR initiatives much more effective. There are two reasons for this. First, transparency encourages a candid discussion of CSR issues with all stakeholders. Second, transparency requires the company to create clear guidelines for how the business will respond to CSR issues.

  • Integrate with the Operating Model: The CSR function must be integrated into a company’s daily operations. At the very least, a company’s businesses, functional units, and partners must coordinate and communicate on CSR initiatives. Furthermore, the commitment to CSR must be translated into specific goals that are embedded in corporate policies and processes.

  • Leverage Business Capabilities: To design effective CSR initiatives, executives need to leverage their company’s specific strengths. If a company’s strengths play to national development needs, it has a particular obligation as a responsible corporate citizen to contribute to achieving these goals through CSR initiatives.

  • Partner with Experts:  Companies should tap into the credibility and expertise of civil society organizations, public-private partnerships, and social business ventures.

  • Measure Results: One CSR best practice virtually absent from MENA companies is measuring the results and impact of CSR initiatives. MENA executives often measure “inputs,” such as the money and employee hours spent, but not outcomes. Companies need to begin measuring the results of CSR initiatives so they can assess and refine their approach.

4. Create an Environment for CSR: “The corporate sector must drive CSR, but other institutions – specifically the government, academia, and civil society organizations – need to actively support this push by vocally encouraging these initiatives and fostering an environment in which CSR can flourish and mature,” added Shehadi.

  • The Role of Government: Governments in the region need to create an environment where CSR is encouraged and expected from companies. After all, governments have a strong interest in CSR as it is a very cost-effective means of enhancing sustainable development.

  • The Role of Academia: The education sector has an important role to play in shaping the attitudes of future business leaders. “Outside the MENA region, CSR is an established part of MBA programs,” said Ghazaly. “Business schools and other educational institutions in the MENA region should follow this example.” “The role of business schools is crucial in the transition towards more sustainable development in MENA”, comments Dr. Dima Jamali, a professor in the Olayan School of Business, American University of Beirut, and the Chair of the Management, Marketing and Entrepreneurship Track.  “Business schools should sensitize future managers and leaders to the moral and ethical aspects of decision-making, and the significant responsibilities that they have to shoulder to help the region win the battle of balanced and inclusive development.  They have to provide the cognitive infrastructure and improve the supply of skills and knowledge pertaining to CSR.  Mainstreaming CSR into the business school curriculum is the most immediate challenge in this respect across the region particularly that CSR continues to be treated in the majority as a peripheral topic.  Business schools also have a role to play in producing relevant scholarship that advances knowledge about CSR in MENA, and liaise with different actors in society in pursuit of an active and constructive CSR discourse” she added.

  • The Role of Civil Society: Civil society organizations in the region are growing and attracting more support as governments realize that they are useful partners in reaching development goals. Civil society organizations are well positioned to partner with private companies to carry out CSR initiatives, lend credibility to these initiatives, and monitor the performance of the private sector on diverse issues such as child labor, fair trade, community involvement, and environmental protection. “One promising type of civil society activity is “venture philanthropy” – a growing global philanthropic movement looking to change the whole concept of “giving” with a transparent, results-oriented approach,” said Dr. Jamjoom.

To conclude, sustainable development is critical for the MENA region’s long-term prosperity and stability. Companies, as good corporate citizens, must become involved in sustainable development and contribute to the broader improvement of their societies. They therefore need to align themselves with these national goals that are built around sustainable development, using the powerful tool of CSR initiatives to help achieve them. The onus of these major development goals does not rest solely on the shoulders of private enterprises. Governments, academia, and civil society organizations have important roles to play in their own right, as well as in partnership with companies, so that they can create an environment in which CSR will flourish.