With philanthropy becoming a hot topic of discussion in the turbulent times we currently live in due to the COVID-19 pandemic, one of the most influential voices in the non-profit world and prolific writer, US-based Alan Cantor, Principal at Alan Cantor Consulting, shares his views with R M Consulting on foundations, corporate giving, and cause marketing.
Q. What is your view on the rising trend of large business groups contributing a significant portion of their earmarked social responsibility funds to foundations they control considering it may be argued that doing so ensures the money is spend more efficiently than if it was to be given to non-profits over which the donor corporate may not have a similar hold?
Ans. This is a big problem, not only for corporate giving, but for donations from high-net-worth individuals. When companies and individuals donate to foundations, it allows them to keep practical control – but it does nothing in the short-term to ameliorate the social and environmental problems the world is facing. One of the drivers, clearly, is that the donors retain practical control: they get credit for being charitable, without actually giving away the money. The other driver is the array of financial incentives for those involved with the foundations. The lawyer who draws up the foundation documents gets a fee. The accountant who files tax returns every year gets a fee. Most importantly, the investment managers get a fee. Often, the foundation trustees (sometimes, family members) get paid an honorarium. And, of course, for the larger foundations, there are staff who receive salaries. It’s in the financial interest of all of these individuals serving the donor to keep the funds invested in the foundation, growing, while distributing the least to charity that they can by law. These are perverse incentives that keep the foundations from actually serving a charitable purpose. At the very least, the foundation structure is very inefficient.
Q. Given the current challenging economic environment, how high is the likelihood of companies turning social responsibility initiatives into ‘marketing with a social spin’?
Ans. Corporations here in the United States have been using their charitable efforts to enhance their marketing for years, even in good economic times. One of the most pernicious forms of this is “cause-related marketing.” In these cases, corporations put the logo of a charity on one of their products – laundry detergent, say – and promise to make a donation to that organization every time the public buys a box of that detergent. Usually, the company doesn’t specify how much it’s giving, so it may only be 1% or less of the purchase price. Cause-related marketing certainly helps sell a lot of detergent, as consumers feel a certain sense of social responsibility when they make their purchase. It’s an incentive for them, a feel-good moment – but it’s usually duplicitous on the part of the corporation.
More generally, corporations try to cleanse their image through their charitable giving. A company may be a major polluter, but then it makes a very public grant to an organization that works on remediating the very environmental damage that the corporation itself may have caused. Or the corporation gives to fight cancer, when its own products are causing cancer.
I can’t speak for the rest of the world, but here in the States, more and more of the corporate money flowing to NGOs is coming from the marketing departments, not from any sort of charitable committee. This is amplifying the self-serving tendencies of corporate philanthropy.
Q. In these times of reset, what are the changes that you expect taking place in the corporate philanthropy segment apart from a possible drop in the number of donors?
Ans. It’s hard for me to judge. I will say that in the U.S., corporate giving accounts for only 5 percent of all charitable contributions, so a drop in giving (which is probable) will not matter all that much. Most people are surprised that corporate giving is such a small part of philanthropy. Because of the power of corporate marketing, businesses generally get an outsize amount of recognition for their gifts. Most people think that corporate giving is much larger than it actually is, because companies are so good at publicizing their own good deeds.
As businesses restart operations in India following the series of lockdowns, Dr Niranjan Hiranandani, President of the National Real Estate Development Council (NAREDCO), and also President of the country’s apex industry body ASSOCHAM, shares with R M Consulting his views on how well companies here have fared in upholding the principles of stakeholder capitalism since the outbreak of the coronavirus pandemic in the world's 2nd-most populous nation.
Q. Do you feel that big business has come across as a force for good during this trying period? Or could it have done better?
Ans. I don’t think the differentiation would be based on size; India Inc. has done the best it could have, under the circumstances as they unfolded. Let me also say that scores of migrant labour walking long distances back to their villages is a shame for humanity; as a nation, we are all guilty of the suffering they underwent.
Getting back to India Inc. being a ‘force for good’, we need to factor in the fact that in the initial days of the lockdown, the impact of the COVID-19 pandemic was not understood in light of the series of lockdowns that unfolded; as a result, the initial response was more in light of handling things for ‘a few days’. Then, as the lockdowns kept increasing, the realization set in that this was not a simple problem. So, from taking care of migrant labour till the Shramik Special trains enabled their return to their home states, to enabling ‘work from home’ for largely urban white- collar human resources, I would say that India Inc. did fairly good.
CSR activities kicked into high gear as India Inc. reached out to the needy. What largely happened was that as a ‘force for good’, India Inc. also kept most of its good work anonymous – so there’s a lot of good that’s happened, and no one stood up and took credit for it, which is the right spirit of doing good work.
Q. How do you expect protectionist tendencies increasing worldwide following the coronavirus outbreak coming in the way of businesses being able to achieve their full potential and benefit society?
Ans. The ‘new normal’ in a world where we co-exist with Corona will have to be accepted. Protectionist tendencies have been around since some time now – from ‘America First’ to ‘BREXIT’ and similar moves across nations worldwide; business will have to work their way around these, and find their own niche markets and segments. Whether this will call for more joint ventures with a local partner; or a locally registered company – there are various options which will be considered and implemented.
When it comes to business organizations being able to achieve their full potential and benefit society, I guess the world, in which we co-exist with Corona, there will be new ways to achieve such goals. Across countries, the business environment is one where, in some aspects, localization makes sense, and then there are some other aspects where globalization still seems to make sense. As the situation unfolds, we will see new paradigms being implemented, and business will achieve potential and also benefit society – it just might take a tad longer, and via different routes.
Q. How challenging has it become for a corporate to follow the principles of stakeholder capitalism in a post-Corona world?
Ans. We, in India, are just coming out of the series of lockdowns, our fragmented supply chains gradually being pieced together. International business is ‘on hold’, and no one knows how the fiscal will end – results of the first quarter (Apr-Jun) 2020 are expected to be bad.
In this scenario, the impact of the Corona pandemic has, in effect, become the ultimate litmus test for stakeholder capitalism, and let me explain how. As I understand it, ‘stakeholder capitalism’ is about ensuring the long-term preservation and resilience of a company, and effectively proving that it had embedded itself within society. Taking this as the pointer, how companies co-exist within the society will make the difference. In the post-Corona world, it will be clear which companies truly embodied the stakeholder model, and which ones only paid lip service to it while maintaining fundamentally, a short-term profit orientation.
That is still some time away. We are yet to recover and get back to work in the real sense – and then, wait for a quarter of proper work happening (hopefully, Jul-Sep 2020) before these aspects become clear.
Dr Niranjan Hiranandani
As part of its continuing series on the impact of the coronavirus pandemic on our lives, R M Consulting had reached out to the World Economic Forum (WEF) that, over the years, has set the agenda for Public-Private Cooperation worldwide and how business can be a force for good. Below are the replies of WEF Managing Director Mr Murat Sönmez to the questions we had sent across.
Q. To what extent do you foresee countries the world over resorting to protectionist policies to protect home-grown companies?
Ans: Public-private cooperation has never been needed more. This pandemic has shown us that we are all connected. In the given situation, it's in the best interest of the countries to collaborate, exchange ideas, solutions and learn from each other. Along with better coordination, the pandemic also calls for greater exchange of best practices on which policies are most effective. Our COVID Action Platform has over 1,200 organizations and individuals from around the world working together to tackle some of the biggest challenges of our day. We can only get through this together.
As countries plan to open their economies, it is in their interests to learn from others. Companies in manufacturing can learn from industries opening-up in Italy. The hospitality industry can learn from the steps taken in Singapore where hotels are using innovative tech solutions to ensure minimum interaction and touch in a bid to attract customers post COVID. This is really the best time to turn to stakeholder capitalism, where the interest of all actors of the society is taken into consideration, rather than a shareholder only drive.
Technologies of the fourth industrial revolution, such as Artificial Intelligence, 3D printing, blockchain and drones, for example, represent great opportunities for governments and companies and governments to redesign how they produce and distribute their products and services in a more transparent, trusted, scalable and efficient way. These, however, require globally interoperable governance protocols such as on the use of data and responsible use of technologies.
Q. Do you anticipate any significant impact on the operations of large MNCs due to any protectionist tendencies developing in their larger international markets?
Ans: It is a fact that operations of MNCs are being significantly impacted due to the pandemic, compelling some of them to look and change their very fundamental ways of functioning. Sectors ranging from education to healthcare to transportation are coming up with new innovative ways of functioning, which would impact their operations, but ensure their survival in this short term. In the longer term, many of them will be changing their priorities. For example, the real estate industry which was looking to prioritize sustainability and reducing carbon footprints at the beginning of the year is looking to add the health and well-being of its users' post-pandemic.
Q. In the wake of the economic devastation caused by the coronavirus pandemic, should governments/regulators play more proactive roles in ensuring that local companies do not fall victim to hostile takeovers?
Ans: While there is no road map to guide us through these unique times, collaboration remains at the heart of a healthy recovery. Governments need to take into consideration short term goals while ensuring long term prosperity for all and wary about hostile takeover among countries is a concerning issue for the world as well as for us.
As the coronavirus pandemic increases the possibility of protectionist policies gaining momentum in many countries, R M Consulting reached out to Mr Venkatraman Balakrishnan (also known as ‘Bala’), former Member of the Board at Indian IT giant Infosys Technologies, and currently Chairman of the Board at Billion loans Financial Services, for his views on this aspect and the likely impact such trends could have on the fortunes of Indian IT companies.
Q. To what extent do you foresee countries the world over resorting to protectionist policies to protect home-grown companies?
Ans. One of the most important developments in the world trade in the last 4-5 years had been de-globalization. With anemic growth in economies across most parts of the world, combined with populist Right leadership in all major economies, had set the clock back on the globalization front. What Covid-19 would do is to accelerate the process of de-globalization. Most of the large economies are battling with lower decadal growth, high unemployment, and huge government debt. The situation does not seem to be correcting in the near term as (the) Covid-19 impact could only go away with the discovery of a medicine to cure it.
(The) US had already started the process of blocking new work visas and even countries in (the) Middle East want to give preference in jobs to locals. De-globalization is also a function of (the) world trying to reduce dependency on China for the global supply chains. So, large global economies are actively pushing for moving manufacturing to their home countries or to countries other than China. I think, de-globalization was a trend already and it will gain further momentum due to (the) Covid-19 situation.
Q. Do you anticipate any significant impact on the operations of large MNCs, including Indian IT giants, due to any protectionist tendencies developing in their larger overseas markets?
Ans. Yes and No. In the IT industry, the business follows talent which India has in abundance. Even the MNCs prefer India for their captives and other back office functions primarily due to availability of high quality labor at an affordable price. But, at the same time, there will be greater restriction on movement of people across countries, both due to health reasons as well as issues like high unemployment in customer markets.
Companies have to figure out the way to deliver services more and more, remotely, without high movement of people across geographies. Hiring local employees in all customer markets aggressively will also mitigate the impact.
Due to (the) Covid-19 impact, there will be significant decline in business combined with high pressure on bill rates. Both will bring down the growth for the industry. In FY 21, I expect a negative growth for the industry if the situation continues. The IT industry will also benefit due to currency. The Indian rupee will decline further with GOI trying to monetize the economy for its higher spending.
Q. In the wake of the economic devastation caused by the coronavirus pandemic, should governments/regulators, including in India, play more proactive roles in ensuring that local companies do not fall victim to “hostile takeovers”?
Ans. Yes and No. A general knee-jerk response of banning all investments from certain countries like China will be (a) foolish thing to do. For any free market, it is important to have stability in regulatory actions combined with (a) free flow of capital. China is the second-largest economy in the world and the bilateral trade between (the) two countries are the highest. What Government should do will be to protect the core industries/technologies and put it through an approval process for greater scrutiny like what (the) US is doing. In a nutshell, India should protect its core industries which are strategic and leave the others to free markets.
Q. Do you feel that the ‘be local buy local’ philosophy benefits local companies more than they do customers?
Ans. This philosophy itself is flawed. Today, the supply chains in any industry are so dispersed across the world, there is no pure local product anywhere. This is a great political slogan but would impact economies in (the) long run. Customers want the best products at better prices. They do not care whether it is made locally or not. Instead, what (the) country should focus is (on) more value addition to be done in India. For India to become a global force in (the) supply chain, we need greater reforms in labor, land, infrastructure, and capital. Without that, ‘Make in India’ will only be a dream.
Q. Do you expect China to lose its position as the world’s premier manufacturing hub because of the corona virus pandemic? If so, by when could this take place? Which are the countries that are likely to gain at China’s expense if such a thing were to happen?
Ans. It is very difficult to replace China as it had become a powerhouse in manufacturing in the last few decades. There is no world capacity on the scale which China had built already. In the short term, you could see some movements to other Asian countries like Vietnam, Taiwan, etc., I don't see them substituting China as a global manufacturing hub in the near future. What global companies would do is to find alternate Asian countries which could co-exist with China on the supply chain. But, China will continue to dominate the manufacturing for years to come. That won't go away.
As part of our continuing series of blogs pertaining to the economic impact of the coronavirus pandemic, R M Consulting reached out to Dr Ashima Goyal, Member of the Indian Prime Minister’s Economic Advisory Council (EAC) and Professor at the Indira Gandhi Institute of Development Research (IGIDR) for her views.
Q. Do you foresee a rise in protectionist policies worldwide following the economic devastation caused by the coronavirus pandemic?
Ans. Trade will contract initially because demand will fall. Second, countries that are able to restart production and maintain supply will be in a better position to supply and will gain trade share. Third, supply chains will seek to diversify - reduce dependence on any one country. Fourth, limitations on people movement will continue – Internet-based trade, outsourcing etc will flourish. Fifth, only if there is a prolonged global recession will some protectionist tendencies rise as countries seek to encourage their own industry. It will be worse if bilateral trade agreements come to dominate multilateral agreements and bodies.
Q. If so, what sort of an impact could such rising protectionism tendencies have on Indian business groups having significant international operations?
Ans. It is too early yet to decide, which of these tendencies will dominate. Indian business groups should try to take advantage of three and four above. The Indian government should act to restart supply and to support multilateral trade bodies.
Q. Do you feel that in the current context the Government of India/regulators should play any role in ensuring that “Indian” companies don’t fall victim to hostile takeovers? If so, should such intervention take place even in those instances where the shareholding of the “promoter group” is either almost non-existent or negligible?
Ans. The government of India should help industry recover from this shock. Regulators should strike a balance between allowing risk-taking equity infusion, while ensuring takeovers are in the interests of the majority of stakeholders and customers.
Dr Ashima Goyal
R M Consulting reached out to Mr Mohandas Pai, former Director on the Board of Infosys, and currently Chairman of the Board of Manipal Global, for a quick Q&A on whether there is a need for greater transparency on the part of companies during job interviews.
Q. While recruiting in future, should companies categorically spell out all the conditions that could make them withdraw a job offer, beyond typical ones as it later emerging that the job applicant had falsified information during the interview process, etc.?
Ans: Yes, we have seen too many pull backs over (the) last 10 years.
Q. Should a “force majeure” clause now specifically find mention even in job offer letters handed out by companies so that a withdrawal of the offer at a later stage due to some cataclysmic event does not come as a bolt from the blue to the person to whom such an offer had been made earlier?
Ans: Yes, time for business to do that. In good times, people accept but 10/15% do not join.
Q. Should in the absence of any specific force majeure clause mentioned in the job offer letter, companies shall pay some amount of compensation if it suddenly withdraws a job offer, and if so, what should be the quantum of such compensation?
Ans: No compensation (is) to be paid as there is no contract till joining.
M D Pai
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