Advancing Entrepreneurship Through Social Responsibility
Thank you for the opportunity to speak with you today. I’m especially delighted to recognize Balazs Szabo, President of Kairos Hungary, and colleagues at the U.S. Embassy Budapest for the work they have done to bring us together for the Kairos Hungarian Summit and Global Entrepreneurship Week 2011.
There is definitely a necessity for global thinking in terms of entrepreneurship, ethics in business, and the role of social responsibility in our dynamic global society. In this regard, I want to reinforce the business case for social responsibility, more commonly known as corporate social responsibility or CSR. In my remarks today, I want to make the point that social responsibility benefits the business community as well as the global community. My emphasis is that there is a business case and, since I’m from the U.S. Department of State, an economic policy case for CSR. Mitigating risk is part and parcel of a company’s return on investment and CSR helps to mitigate risk for companies large and small. By extension, CSR contributes to global economic growth and democracy.
Clearly, corporate social responsibility is important because of the realities of globalization. The people of the world are becoming more interconnected due to advances of technology, communication and transportation. The global market economy is moving not only goods and services but ideas and values as well.
Global expansion, increasing regulatory oversight and the internet are among the factors that have heightened awareness about the importance of preparing for macro, sectoral, and operational threats to both an entrepreneur’s and an organization’s reputation and competitive position. As entrepreneurs and small business owners, activities that harm the planet and people, will damage your profits. That’s why we talk about the importance of the “triple bottom line,” i.e., people, planet, and profits.
Entrepreneurs and innovators are risk-takers and that’s what makes you successful. However, let me discuss integrated approaches to risk management, and how CSR contributes to ensuring that crises are handled effectively when they do arise.
Managing enterprise risk is particularly challenging for retail and consumer products companies. The growing globalization trend and the need to operate in business environments with different cultures, laws, and environmental concerns, along with the complexity of sourcing materials and human capital for manufacturing or final sale of the product, create a number of potential risks for companies. It is especially important for retail and consumer companies to maintain the reputational integrity of their brand, and to be socially responsible throughout their business operations, since their products and services are usually marketed directly to product purchasers. Maintaining a bond with buyers is critical since this bond can be easily undermined if purchasers believe that companies are selling products unworthy of their reputations, or are made in a non-sustainable, non- environmentally friendly manner.
Among the many risks that entrepreneurs to multinational businesses face is the risk of damage to their reputation. In an age of market proliferation, consumer loyalty and reputation are concrete factors in ensuring business success and shareholder value. Because brand value and reputation are so important in a global marketplace, avoiding suspicion and engendering pride in business activities isn’t just good ethics —it’s good business. As the World Economic Forum stated in Davos, Switzerland, “a company that profits while doing harm to the community is likely to suffer in the long run.”
Reputational risk can have an immediate and long-term impact on the bottom line. Business owners and organizations are being held accountable for their impact on society and the environment. No company benefits from being associated with unfavorable business practices, and stewardship is a key element to ensuring a positive reputation.
Some have argued that corporate social responsibility is inconsistent with a corporation’s responsibility to maximize profits. Such arguments are based on the narrow premise that expenditures that do not calculate an easily measured, explicit, short-term improvement to the bottom-line constitute a loss. But the context of a business operating in the real world, in the globalized economy, cannot readily be reduced to a ledger – broader considerations of profitability must be taken into account. It is clear to me that businesses are aware of these realities and operate conscious of long-term profitability, which demands cultivation of the market and business environment to maximize share value down the line. In fact, the largest and most successful U.S. firms are already true believers.
Because of the complexity of the global economy and the inherent cross-border nature of international business activity, companies must address the interests of multiple constituencies, including customers, employees, regulators, and members of the communities where the company operates, both at home and abroad.
Globalization has resulted in an increase in the power of the private sector, from innovation to influence. This is especially true for small businesses since research has proven time and again that new businesses and small businesses are the economic engine of the 21st century. The changing role of government has seen the private sector and NGOs become providers of many services previously offered by government. One consequence of this is that consumers, through their purchasing decisions, can have an increasing impact on society and the environment. These changes have led to closer scrutiny of the activities and policies of businesses large and small. In developing countries, governments have historically faced serious and particular challenges and constraints, and private sector organizations have often provided services in areas such as health, education and welfare. As the capability of some developing-country governments expands, the roles of government and private sector organizations are undergoing change.
Community expectations about the performance of these organizations continue to grow. There are growing demands for organizations to be accountable to the community and other stakeholders. “Community right to know” legislation in many places gives people access to detailed information about the operations of some organizations. A growing number of organizations now publish annual sustainability and corporate social responsibility reports to meet stakeholders’ requirements for information about their performance. These factors and others form part of the context for social responsibility today and contribute to the call for organizations to demonstrate their social responsibility.
The most noteworthy trend is that CSR now goes beyond philanthropy. A comprehensive approach to CSR includes:
- Exemplary employment practices;
- Safety in the workplace;
- Human rights;
- Responsible environmental protection and practices;
- Contribution to the overall growth and development of the local economy;
- Innovative programs with measurable results;
- Compatibility/contribution to local science and technology; and,
- Compliance with U.S., international, and local laws.
The most fundamental and effective means of integrating social responsibility into a company’s business plan is through an organization’s governance…the system by which decisions are made and implemented. Entrepreneurs, small business owners and corporations alike should also apply established management practices to addressing their social responsibilities and integrate these practices into a framework that complements the company’s mission, vision, and goals. Research, planning, developing programs, setting targets, allocating resources, developing competencies, regularly evaluating activities and cataloging best practices can be used to increase an organization’s performance through its CSR activities. These are the skills that entrepreneurs and innovators do best.
Socially responsible corporate governance allows better identification and management of risks and opportunities and fosters legitimacy. Corruption undermines an organization’s ethical environment, and can put it at risk for criminal prosecution as well as civil and administrative sanctions. Among other effects, corruption also violates human rights, erodes political processes, damages the environment, distorts competition and impedes the redistribution of wealth and economic growth. Most business owners first comply with regulations and laws and then identify the organization’s core competencies with which to align their CSR activities and community outreach.
So CSR is all about “doing well by doing good.” Strong values contribute to the reduction of corruption, to increased transparency, and to fairer business practices. Responsible and altruistic corporate practices that enhance civil society help mediate risk by reducing the unpredictability of the business climate.
Social Entrepreneurship is an extension of socially responsible corporate governance. A social entrepreneur identifies a social problem and uses her/his entrepreneurial skills to create a venture to achieve social change. This creates social capital as well as the opportunity for financial profit, especially if practiced with a “world view.” During the 19th and 20th centuries some of the most successful entrepreneurs straddled civil society, government and business. As Secretary of State Hillary Clinton has stated: “Social entrepreneurs who marry capitalism and philanthropy are using the power of the free market to drive social and economic progress…there is money to be made through socially responsible investments.” Twenty-first century businesses across the globe are innovating to generate both financial returns and positive social and environmental change. This is in keeping with the goals of the Kairos Summit to foster individual and collective action towards a better future. In January 2012, the State Department will convene a forum of trend-setting corporations, investors, entrepreneurs, and governments that are innovating for impact.
The State Department and Corporate Social Responsibility
We in the State Department work with U.S. businesses on several issues related to corporate social responsibility. The Corporate Social Responsibility Team in the State Department’s Bureau of Economic and Business Affairs leads the Department’s engagement with U.S. businesses in the promotion of responsible and ethical business practices. The CSR team, of which I am pleased to be Coordinator:
- Promotes a comprehensive approach to CSR in consultation with other bureaus and agencies;
- Provides guidance and support for U.S. companies; and
- Partners with the business community, trade unions, associations, NGOs and civil society to encourage the adoption and implementation of policies that help companies “do well by doing good.”
This includes the OECD Guidelines for Multinational Enterprises, the Secretary of State’s Awards for Corporate Excellence, public-private partnerships and the important role of the private sector in promoting development abroad.
The OECD Guidelines
The Organization for Economic Cooperation and Development (OECD) Guidelines constitute a set of voluntary recommendations to multinational enterprises in all the major areas of business ethics, including employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, and taxation. To clarify: governments commit to promote them within their business communities, while the Guidelines remain voluntary for the companies, themselves. Since Hungary is a member of the OECD, I wanted to mention the Guidelines in the context of today’s Summit.
The Secretary of State's Award for Corporate Excellence (ACE)
At the State Department, one specific way we recognize and promote the good work of American business and encourage corporate social responsibility is through the annual Secretary of State’s Award for Corporate Excellence, also known as the ACE, which is handled by my office. The ACE criteria are based on the OECD Guidelines. For almost 13 years now, I have had the privilege of managing this program for the Secretary of State.
ACE nominations are submitted by our Ambassadors around the world for a U.S. company’s achievement based on the State Department’s comprehensive, holistic approach to CSR that I previously referenced.
The winners for the 2010 ACE were Denimatrix in the Small to Medium Size Enterprise (SME) Category, and in the Mulitnational Enterprise (MNE) Category, Mars, Inc., and Cisco Systems. Let me briefly describe why the small business winner earned the State Department’s prestigious ACE Award and why ACE winners are exemplars of doing business overseas.
Denimatrix of Lubbock, Texas, was chosen for the textile and apparel company’s environmental stewardship in reducing the environmental impact stemming from its production process, contributing to the development of the local economy; and reaching out to the community to help disadvantage youth and the homeless in Guatemala. Denimatrix produces high-end jeans for various American retailers. The company’s social responsibility stems from a business culture based on ethical practices. This commitment to socially responsible entrepreneurship and to ethical business and labor practices embody the ACE program. Denimatrix impressed us with the ways it provides for its employees beyond providing a paycheck, including free medical clinics and medical treatment, and subsidizing the cost of medicine. Its water treatment management far exceeds Guatemalan law and its recycling and eco-friendly lighting exemplify its stewardship of the environment. The company is the first fully integrated vertical supply chain from Texas raw cotton to finished jeans in the Western hemisphere—a business model that allows increased flexibility and speed-to-market and ensures quality control and accountability through the entire supply chain.
In 2009, our small business winner was TOMS Shoes for the company’s work in Argentina. TOMS Shoes employs a simple business model: For every pair of shoes they sell, they donate a pair to a child in need. And for thousands of boys and girls in Argentina and around the world, a pair of shoes can make the all difference in preventing painful and often irreversible foot injuries that can literally rob them of the joys of childhood. Many children in the Greater Buenos Aires and Misiones region of Argentina walk barefoot over unpaved roads, rocky terrain, and contaminated soil every day to reach clean drinking water, exposing their feet to cuts that can cause infection and disease.
That was until TOMS’ first “shoe drop.” In 2006, a team of 20 TOMS employees volunteered to hand out over 10,000 pair of shoes to children in rural Argentina communities. Since then, interest in both their shoes and their shoe drops has grown substantially. By 2008, TOMS Shoe Drop Tour had expanded to cities around the country and around the world. And it has had such an impact that it even attracts tourist volunteers and has earned a spot on Travel and Leisure magazine’s top 20 life-changing, socially conscious tourist trips. Not only have the company and its volunteers delivered shoes to the needy, they have also supported local health and social service agencies that vaccinated nearly 800 children, and developed a nutritional census in Argentina to help the government track and respond to dangerous trends in obesity and cardiac health.
In the aftermath of horrible flooding that left thousands homeless in the province of Salta early in 2009, TOMS volunteers chartered a cargo plane to support the relief effort and deliver first aid and other supplies to help the community rebuild.
So the more shoes you buy, the more shoes TOMS can give away. That’s how it all works. It’s entrepreneurship at its best.
What is particularly exciting to me is when a company finds a way to bring its core strengths – perhaps its distribution system, its technology or its accounting expertise – directly to bear on the core needs of a community in which it lives and works. In this way, a corporation offers not just money, but the best of what it has to offer. The benefits come full circle. The companies that receive the Secretary of State’s Award for Corporate Excellence exemplify that U.S. companies active abroad contribute not only to our overall American economy – how they operate contributes greatly to the image of America that is projected overseas.
For more information and history of the ACE program, including the ACE finalists for 2011 and past winners, I invite you to visit our website at www.state.gov/e/eb/ace.
The State Department and Global Entrepreneurship
In the United States, because we view entrepreneurship as critical to a free and prosperous society, we make it a part of our engagement with other countries. We see this engagement as a true partnership, a sharing of ideas, and a way to build security, opportunity, and prosperity worldwide.
Promoting entrepreneurship is an important component of U.S. diplomacy and development policy abroad. The U.S. government has initiated a series of efforts to sustain, strengthen, and expand entrepreneurship. Departments and agencies from across the U.S. government are working together to advance entrepreneurship around the world.
In April 2010, President Obama hosted the Presidential Summit on Entrepreneurship in Washington, DC. The Summit included over 200 entrepreneurs from Muslim communities in 55 countries, along with nearly 50 leading U.S. business and government leaders. In the closing session of the Summit, Secretary of State Clinton announced the establishment of the Global Entrepreneurship Program (GEP) to pursue the work of convening, catalyzing and coordinating both U.S. and in-country partners around six key areas of activity considered essential to bolstering the entrepreneurial ecosystem in these countries.
The Global Entrepreneurship Program (GEP) at the State Department marshals private and public sector partners around six areas of activity: (1) identifying promising entrepreneurs; (2) training them; (3) connecting entrepreneurs to in-country networks and to resources in the United States; (4) increasing funds available for emerging enterprises; (5) promoting supportive policy; and, (6) celebrating their successes.By establishing an ecosystem that supports the efforts of entrepreneurs in emerging countries, entrepreneurs have the opportunity to advance their own enterprises while improving their country’s overall economic well-being.
The GEP aims to ensure that there is a coordinated, holistic approach to assisting entrepreneurs in target emerging markets by assembling partners to provide support for specific areas of activity essential to an entrepreneurial ecosystem.
The global economy needs entrepreneurs and innovators to both sustain and advance our global community. When entrepreneurs and businesses take the initiative and make corporate social responsibility a central part of their practices, everyone benefits. We see rewards on their bottom lines and within local communities. By promoting the cooperation of businesses, NGOs, and governments, we strengthen the consensus favoring both entrepreneurship and corporate social responsibility and enhance the mechanisms for its continued growth.