(fl Promoting Environmentally and Socially Responsible Private Sector Investment 23481 2001 Investing in People: Sustaining Communities through Improved Business Practice A"llllllEltu 3u lUl;$ l-l; - 3ll *U A.l<2^l$ wivoill 8 18 Lil Li I I-KM - .. ,2 iIFC # ' INTERNATIONA[ FINANCE CORPORAT i."... A Member of the dB :G! '~~~~~~~~~~~~~~~~~~~~~~ W'/ e' - ~ - #v ,.~~~~~~~~~~~~~~~~~~~~~ F8"'~~~~~~~~~~~~ The International Finance Corporation (IFC) the World Bank.Group's private sector investment arm, seeks to further economic growth by promoting sustainable private sector development in developing member countries. thereby reducing poverty and improving people's lives. IFC is a legally and financially independent institution and is collectively owned by its 174 member countries. Since its establishment in 1956. IFC has committed more than $29 billion of its own funds and has arranged $19.2 billion in syndications and underwriting for 2.446 companies in 136 developing countries. By working closely with business and entreprenuers - both large and small - IFC adds value to the development process by acting as an adviser,to clients'and governments and by creating standards of behavior in corporate environmental and social responsibility for its own investments - and for the private sector generally. IFC strives to be more transparent and accountable and seeks input from a broad set ot stakeholders, especially project affected communities. IFC has in-house environmental and social project appraisal capacity and also provides advice and training to financial institutions on these standards. IFC's environmental, social and disclosure policies, procedures and guidelines have been developed after extensive peer review and draw on best practice and experience across a wide range of industries and disciplines. Using both its own funds and concessional funding from sources such as the GEF, IFC also invests actively in projects with specific environmental goals, supporting projects ranging from renewable energy to clean water supply. -For more information on IFC and its activities in promoting sustainable private sector investment, go to: www.ifc.org/enviro. 4 IFC Environment Division Promoting Environmentally and Socially Responsible Private Sector Investment 14!IFC LNTERNATIONAL FINANCE CORPORATION A Member of the World Bana Group the idea that community developrnent is not just an "add-on' to doing business. However, each company has taken a different approach to achieve their community development goals. One company, TISCO, an iron and steel company in India, has spun-off a company- sponsored NGO specifically aimed at implementing community development activities. Escondida, a copper mine in Chile, has created two foundations to address community development needs in surrounding communities and beyond. Finally, Phinma in the Philippines, believes that the only way to make community development sustainable, is to tie it to their core business through specialized management functions. I believe firmly that the private sector, acting responsibly, can be an enormous force for good in helping to achieve our dream of a world free of poverty and I hope this Guide can make a small contribution to that shared goal. There is much to be done and I welcome you in joining us on our journey to sustainability. Peter L. Woicke Executive Vice President International Finance Corporation December, 2000 IV FOREWORD FOREWORD Development is about people. And, I believe strongly that investing in people to help them achieve their hopes and goals -to improve their lives - is what development is all about. As business learns to be more responsible corporate citizens and neighbors, companies, communities and civil society organizations will increasingly be working together to find solutions to even greater development challenges in developing countries. The International Finance Corporation (IFC) is starting to map its road to sustainability. A central pillar of this process will be how IFC and our clients engage with stakeholders, especially the communities where we work: I strongly . believe that private sector investment and sustainable growth in the developing world is fundamental to achieving greater equity in the development process. At the dawn of this new century, the development challenges we all face, as global citizens, remain daunting. Stark inequalities still exist at all levels -north and south; local and global. We live in a world where 1.2 billion people earn less than $1 a day; 2 billion people lack access to electricity; and 3 billion people lack access to clean drinking water. These numbers underscore the truth that poverty is a vicious and complex cycle. But, we should not forget that there are faces behind the numbers and finding innovative and lasting solutions to these challenges should be a never-ending priority. It is crucial that the private sector, as an increasingly significant catalyst for positive change, continues to step up to face these challenges thereby demonstrating responsibility and accountability in the development process. Rapid Peter L. Woicke communications in the "global village" mean that companies' environmental and social performance is under ever-greater scrutiny from an ever-widening stakeholder audience. As a result, our understanding of the boundaries of private sector corporate responsibility is evolving at a rapid pace. In turn, this acts as a driver for new and innovative models of assurance, accountability, and partnership. The cynic may view this simply as a response to criticism from pressure groups, but I believe that sound business performance will increasingly be synonymous with environmental and social sustainability. Indeed, a company's bottom line may very well be at stake if its 'local license to operate' is put at risk. Additionally, business and industry increasingly recognise that engagement with communities goes beyond consultation and dialogue - they may also have to concretely demonstrate that communities will derive development benefits from their operations. Many clients and other businesses have told us that they feel guidance in this area and the opportunity to learn from others would be most valuable. In response, IFC has prepared this Community Development Resource Guide as a tool primarily for companies, but also we hope of value to NGOs and community groups, governments, consultants, policy-makers, development practitioners and communities themselves. It follows the 1 998 release of the public consultation Good Practice Manual from which we have received much positive feedback (for which we are grateful) and which we believe provides complementary guidance in this difficult area. We hope that the Guide will help prioritize development needs; allow others to learn from and build on the successes -and failures -in community development; and to suggest innovative solutions to bridging the divide between business and communities. The Guide draws generally on concrete examples of corporations and projects where- complex environmental and social impacts have been dealt with innovatively and successfully. But, a number of these examples also underscore the reality that nobody has all the answers; that it is an evolutionary and evolving process where we all continue to learn. To illustrate this, the Guide includes three in-depth cases of IFC clients who have not only woven community development into their corporate ethos - but they have championed FOREWORDI li * Key Principles for Good Partnerships 28 * Forming Partnerships with NGOs and CBOs 28 * Partnering with Other Businesses 29 * Working with Other Donors 29 * Partnering with National and Local Governments 30 * Building Government Capacity 31 * Balancing Local, Regional and National Interests 32 * Coordinating with Government and Other Stakeholders 33 * Conclusions 33 Chapter 6 Options for Program Structure 35 * Choosing between a Company-Managed or Independent Program 36 * Some Considerations for Company-Man-aged Programs 36 * Some Considerations for NGO or Foundation-Managed Programs 37 * International Standards for Foundations, Trusts or Non-Profit Organizations 37 * Boards of Directors 37 * Staffing 38 * Funding Mechanisms 39 * Financial Disclosure 39 * Raising Outside Funding and Support 40 * Monitoring and Evaluation 40 * Conclusions 41 Chapter 7 Participation and Sustainability 43 * Incorporating Stakeholders: Building Participation into Program Structure 44 * Building Sustainability into Project and Program Structure 45 * Conclusions 46 Case Studies Case Studies: Lessons in Community Development from IFC Clients 47 Introduction 49 TATA IRON AND STEEL COMPANY (TISCO): Creating a Company-Sponsored NGO for Community Development 51 PHINMA Group: Community Development as a Management Function 59 ESCONDIDA: Creating Foundations for Sustainable Mining 65 Annexes Abbreviations and Resources 71 * Abbreviations 72 * Resources 73 TABLE OF CONTENTS Foreword iii Acknowledgements v Key Principles for Community Development Programs vii Introduction ix * The Purpose of the Resource Guide ix * The Resource Guide's Audience ix * How to Use This Resource Guide ix * Defining Corporate Community Development Programs x Chapter 1 The Business Case for Community Development 1 * Earring a 'Local License' to Operate through Improved Community Relations 3 * Creating Strategic Advantage through Community Development Programs 4 * Community Development Programs Help Fulfill Business Objectives 5 * Conclusions: Toward Strategic Community Development Programs 6 Chapter 2 Defining Community 7 * Information Sources and Techniques 9 * Identifying and Prioritizing Stakeholders 9 * Social Impact Assessment 10 * Balancing Local, Regional, National and International Interests 11 * Including Vulnerable Groups 12 Chapter 3 Defining Community Development Program Areas 13 * Use Available Information 14 * Use Participatory Methods 14 * Start Small, Build Trust 13 * Sequence Community Development Programs with the Project Cycle 1 6 * Conclusions -16 Chapter 4 Linking Core Business Activities with Community Development 17 * Maximizing Local Employment 1 8 * Local Subcontracting 20 * Maximizing Benefits from Infrastructure Development 22 * Benefiting from Employee Involvement 22 * Integrating Community Development Concerns into Business Decision-Making Processes 23 Chapter 5 Partnerships for Local Development 25 * Four Qualities to Look for in Partner Organizations 27 ACKNOWLEDGEMENTS The Community Development Resource Guide was created with the input and collaboration of a large number of people. Amit Nigam was the Guide's principal research author. Shawn Miller and John Butler were the Guide's Project Managers. Harry Pastuszek edited this draft. The Guide benefited greatly from the input of IFC staff including Dan Aronson, Kerry Connor, Nick Flanders, Debra Sequeira, Eric Brusberg and Dana Lane. Carol Lee, Meg Taylor, Andreas Raczynski, Mark Constantine, Glen Armstrong, Maria Gallegos and Martyn Riddle all reviewed the Guide and offered their input and support. Special thanks goes td Peter Woicke for his vision and willingness to take risks in expanding IFC's role in sustainable development. The Guide also benefited from the input of others within the World Bank Group. Special thanks to Joyce Malombe in the Social Development Family who collaborated throughout the process. It also received helpful input from Rita Hilton in the Partnerships Group, Coralie Gevers and Nigel Twose in Business Partners for Development, Kathryn McPhail, Aidan Davy and Lee Irish from the Social Development Family and Ramanie Kunanayagam and Gary McMahon from the World Bank Mining Department. The IFC case studies were researched and prepared by Renee Dankerlin. She was assisted in this effort by: Messrs. Jose Miguel Ojeda and Jorge Zeballos of Fundacaion Minera Escondida and Minera Escondida Limitada respectively; Mrs. Shaksi Sharma and Mr. R.K. Singh of Tata Iron and Steel Company (TISCO); and, Mr. Roger Salazar, Mr. Antonio de la Rosa, Mr. Pyth Brion and Dr. Magdaleno Albarracin of the PHINMA Group. IFC would like to thank these individuals for their time, expertise and willingness to contribute to the case studies. Many people shared experiences and lessons learned from their companies' community development programs or company-initiated NCOs, including (in no particular order) Hugh Rix, Palabora Foundation; Richard O'Brian, Richards Bay Minerals; Carlos Alberto Roxo, Aracruz Celulose; Enrique Andrade, Cerro Matoso; Manuel Bonifaz, Endessa/ Botrosa; Rosauro Luntayao, Central Azucarera DQon Pedro; Rene Lawenko, Philippine Investment Management Corporation; Beatrice Lopez, formerly from Fundacion Inti Raymi; Javier Diez de Medina; Inti Raymi Foundation, Arthur Hood, Misima Mines Limited; Sixto Mendez, ARCO petroleum; Jean-Pierre Reveret and Dan Lambert, QIT Madagascar Minerals; Dan Lipson, Fundacion Wong; John Senior and Glynn Cochrane, Rio Tinto; and Sharon Belanger, Niel Watlington -and Debbie Bruin at AES Corporation. A number of people in NGOs and research institutions also offered A note on sources: A variety of comments, suggested companies and shared their experiences with secondary sources were also used companies engaged in community development issues. Gina Velasco, to draft this document. Secondary Philippine Business for Social Progress, commented throughout the research sources are cited in the resource process and put the author in touch with a number of Filipino companies directoy. Examples that. come with excellent community development programs. Harriet Fletcher and Jane primarily from secondary sources Nelson, Prince of Wales Business Leaders Forum, also offered a great deal of (sometimes supplemented by help. Maria Clara Bertini, Fundacion Esquel, helped put the author in touch phone conversations or personal with a number of company programs in Ecuador. In addition, the Guide communication) also cite the benefited fromn the suggestions, information and contacts provided by appropriate source. Stephanie Hanford, World Business Council for Sustainable Development; Carlos Diez Canseco, Sociedad Nacional de Mineria Petroleo y Energia in Peru; David Logan, Corporate Citizenship Company; Shirley Buzzard, Corcom; Myra Alperson, the Center for the Study of Philanthropy; James Cooney, Placer Dome; Michele Chan-Fishel of Friends of the Earth-US; David Clayton, Industrial Cooperation and Development advisor; Mokheti Moshoeshoe, South African Grantmakers' Association; Chris Krueger, Linda Borst, Carlo Dade and Walter Price, Inter-American Foundation; Assheton Carter, University of Bath; Mike Luz, Asian Institute of Management; Ed Sevilla, Unocal Philippines; and Rob Wasserstrom, the Terra Group. ACKNOWLEDGEMENTS V Finally, special thanks go to the people who offered detailed comments in the process of peer review, including Gina Velasco, PBSP; Stephen Davis, Western Mining Corporation; Laurie Regelbrugge, Civicus; Roh Wasserstrom, the Terra Group; Janet Ranganathan, World Resources Institute; John Senior former director of Community Relations at Rio Tinto; Chris Chamberlain, formerly of the Bank Information Center (BIC); Des Connor of Connor Development Associates; Alan Dabbs, ProNatura; Myra Alperson, the CUNY Center for the Study of Philanthropy; Michele Kahane, The Ford Foundation; and Delwin Roy; President Emeritus of the Hitatchi Foundation. Design, artwork and formatting prepared by Wood Communications. VI ACKNOWLEDGEMENTS KEY PRINCIPLES FOR COMMUNITY DEVELOPMENT PROGRAMS 1. Engage in effective community consultation Culturally appropriate and effective community consultation is key to proper community development. Consultation through all phases of a company's operations forms a basis of trust and helps companies identify community needs, define the community development responsibilities of stakeholders and manage expectations among community members. Companies should consult IFC's public consultation Good Practice Manual for practical "hov. to" advice on effective consultation. 2. Build trust Building trust between the company, community members and other stakeholders is essential to a successful program. Trust may be difficult to establish and hard to maintain. Culturally appropriate consultation and participation, along with good faith and transparency, are essential to building and maintaining trust between all stakeholders. 3. Manage expectations by clearly defining roles and responsibilities N-w private sector development tends to raise stakeholder expectations for community development. Unless companies clearly define their commitments to community development they run the risk of failing to meet these heightened expectations. The company must also make clear that government and the community will have roles to play. Once roles and responsibilities are defined, companies should communicate these clearly and consistently. Unmanaged expectations lead to mistrust between the company and community. 4. Develop appropriate capacity Where companies lack personnel with community development experience and knowledge of local customs and needs, people with these skills should be hired. In addition to, or instead of, developing internal capacity, companies might also work with partner organizations such as national or local governments, community groups, or NGOs to develop their capacity as partner organizations in the community development process. 5. Mobilize core competencies Companies have core competencies that can be used to promote community development. These include their products, political and business connections, financial management, human resources, and other employee skills. 6. Set measurable goals and report on progress Setting goals and measuring progress allows a company and its stakeholders to monitor Ai the program's successes and shortcomings. Such transparency will be essential to building trust among stakeholders - and to the eventual success of the program. KEY PRINCIPLES FOR COMMUNITY DEVELOPMENT PROGRAMS VIl 7. Forge AIralegic parinership, Often, a variety of organizations share specific community development goals with companies. Companies should form strong, strategic partnerships, when possible, with local or national governments, local and international NGOs, other local businesses, universities, research institutes, multilateral organizations, unions or other stakeholders with similar objectives. 8. Plan for sustainability Projects should be designed so their irrpact continues long after the company's involvement. Projects that focus on developing community skills and capacity or improving community incomes yield more sustainable benefits than projects and programs that simply distribute goods and services. Companies can plan for sustainability with communities by building community capacity to manage projects and encouraging links with other organizations. Companies should prepare to hand over responsibility for projects to communities, governments or other organizations once the program has become sustainable and self-sufficient. Setting a timetable to hand over responsibility with measurable goals and benchmarks is essential to avoiding dependency. Vill KEY PRINCIPLES FOR COMMUNITY DEVELOPMENT PROGRAMS - INTRODUCTION THE PURPOSE OF THE RESOURCE GUIDE This Guicle aims to serve as a resource guide to help International Finance Corporation (IFC) clients and other companies establish effective community development programs for communities located This Guide aims to provide IFC near or affected by their operations. i a o r clients and other private sector Companies, communities, governments, and NGOs all have a role to play companies with practical in promoting development. Companies recognize that it is increasingly difficult to do business without building good relations with all advice to gu,de them through stakeholders. Good community relations involves both engaging the process of establishing community members in ongoing dialogue and demonstrating to corporate community communities that they will derive development benefits from a company's operations. Promoting community development, then, is a key to good development programs. community relations. Though companies are acknowledging that they have a role to play in community development, many have limited experience in dealing with complex community and social issues, particularly in developing countries. Many of the examples used in this Guide draw on lessons learned from various national companies who have a long history of working closely with neighboring communities.This Guide aims to further IFC's mission to 'promote private sector investment in developing countries, which will reduce poverty and improve people's lives.' It seeks to help interested companies by drawing on the community development experiences of some of the world's leading companies. THE RESOURCE GUIDE'S AUDIENCE The Guide's primary audience includes project managers, corporate affairs officers, community relations officers, human resource ancl purchasing managers, CEOs, senior executives, and others interested in doing community development work. The Guide may also be useful to: . researchers or practitioners interested in corporate social responsibility issues d community leaders in the vicinity of a project * NGOs or community groups who are thinking of forming partnerships with companies * policy makers who want to maximize the local development impact of companies * consulting firms or individuals who are commissioned to carry out or design, and community development activities. HOW TO USE THIS RESOURCE GUIDE Each company and each comnmunity will have different needs and goals. As a result, it is difficult to set defined rules for doing community development work. -Ihis Guide lays out general principles and methods, disseminates good practice, and points readers to other resources to helpI develop an appropriate community development program. The Guide's focus is shaped by the needs of IFC clients. The examples are drawn from and tailored to developing country contexts to address issues faced in IFC-financed projects. The Guide also draws heavily on examples from sectors that have large local and regional social, community and environmental impacts. Companies in the oil, gas, mining, power, transport, tourism and agribusiness sectors, as well as large manufacturing companies. face particularly strong pressure to forge good relations with neighboring communities and have taken a keen interest in community development issues. INTRODUCTION ix DEFINING CORPORATE COMMUNITY DEVELOPMENT PROGRAMS Community development programs are programs to promote sustainable economic'growth, environmental protection, education, skills building and the health and welfare of people who live near or are affected by a company's operations. They can be managed by a company department specifically designed for the purpose or even by an NGO, or through a foundation. They might also be managed within a company's purchasing, marketing, human resources or distribution departments. Some of the most innovative community development efforts arise from cross-functional partnerships between groups within a corporation. Playing an active community development role involves making commitments that go beyond those of most businesses. This includes: * getting a strong comrmitment from the CEO and senior management to take on a positive community development role * hiring staff with solid experience in community development * building awareness of community development issues and needs with employees and managers * hiring local staff with knowledge of community issues * mobilizing core competencies of the business, including products, political and business contacts, employee skills, training, financial management, human resources, and other resources in support of community development, and * assuming responsibility and accountability for the community development programs and strategies adopted and identifying incentives/operational practices that promote and encourage community development. Building a good community relations and development program r. also involves effective public consultation. Companies should review the IFC publication Doing Better Business Through Effective Public Consultation and Disclosure: A Good Practice DuiricBrBumneS Manual. The Manual offers practical "how to" guidance to C-,lWi- ar d Mqlosu,ta companies on developing consultation strategies and conducting culturally appropriate consultation on project-specific environmental and social assessments. Many companies recognize the benefits of doing good community development work and choose to take on these commitments. In the process, communities benefit from companies that are better equipped and eager to assume a role as partners in community development. IFC X INTRODUCTION Wy~~~~~~~~~~~~~~~V I--. CHPE :Te uiesCsefrCmuit eeomn THE BUSINESS CASE FOR COMMUNITY DEVELOPMENT REFERENCE 1.1 *1 Benefits of good community relations... -'I A few years after calling for a moratorium on all petroleum development activities in the Pastaza province of Ecuador, an indigenous people's organization 1OPIP) and other groups hegan working with ARCO to move its oil projects forward. This was, in part, due to ARCO's ongoing efforts to support leadership among community groups, contribute to local institutions and engage stakeholders in a dialogue about environmentally and socially responsible oil exploration and community development in their concession areas. Though faced constantly with challenges and difficulties, ARCO was able to build positive working relations with various community groups in their area of operations. A key focus of concern for these indigenous peoples groups was a community development plan thaf wvould be carried out in the exploration and development phases of the operations. Source: Mendez, Parnell and Wasserstrom and costs of bad community relations. Representatives of Ecuadorian indigenous groups in Napo and Sucumbios provinces have sued another oil company for $ 1.3 billion in damages in a US court. These groups claimecl that the comp-any caused environmental damage that adversely affectecl the health andl well being of indigenous communities. The lawsuit was filed in 1 994, the same vear that ARCO signed an agreement with the indigenous peoples in Pastaza province to resolve through dialogue the issues surrounding its prospective oil development. In 1997, the government of Ecuador asked the US court to reopen the case in Napo and Sucumbios provinces. The lawsuit has not yet been resolved. Some companies engage in community development work because they are committed to social responsibility and community development. However, businesses should also recognize that community development makes good business sense. This chapter highlights the business case for doing effective and sustainable community development work. Three reasons-why companies might engage in community development work are: * to earn a 'local license' to operate * to create strategic advantage through community development work, and * to address specific business issues. Not all companies choose to develop their own capacity to do community development work. Often, companies prefer an ad hoc or phi.anthropic approach to achieving community development goals, such as: * participating in business forums that focus on community involvement activities * giving money to local community development foundations or scholarships for local educational programs * organizing employee volunteer programs with local organizations that carry out community development work, and * forming partnerships with NGOs or other organizations that play a role in managing community development activities: Others may go beyond the ad hoc approach and develop proactively their internal community development capacity, either by setting up a community development department, by sponsoring an NGO or by actively promoting community development objectives within existing business units. 2 CHAPTER I The Business Case for Community Development EARNING A 'LOCAL LICENSE' TO OPERATE THROUGH IMPROVED COMMUNITY RELATIONS As communities-grow more organized and civil society continues to call for increased corporate social responsibility, many companies have broadened their definition of the 'local license' to operate. Companies commonly accept that they need a legal license from the relevant government agencies and departments in order to operate in- a project area. The 'local license' to operate is a newer, evolving concept. A 'local license' means that a company has earned the good will of the communities that surround or are affected by a project's operations. This 'local license' also suggests that the company has demonstrated that its operations will benefit not only local communities, but also the company and its shareholders. Indced, this 'local license' can translate into benefits to the company's bottom line. If a solid consultation program is part of the process of obtaining legal license, good community relations will make gaining this consent easier. Good community relations can help raise awareness of unforseen issues or problems, avoid unnecessary conflict and hostility, create a better working environment for employees from outside the area, recruit employees from within the area, and build business links, if possible, with people and companies in the area. REFERENCE 1.2 Company skills and resources that may contribute to effective community development include: * the ability to generate incomes, jobs and wealth for local communities * managerial skills * planning skills * financial skills * market analysis capabilities . marketing and communication skills * product donation * donation of premises or office equipment - human resources development, and * training. REFERENCE 1.3 - A strong community relations program involving ongoing community consultation, dialogue and a community development program helped Shell Prospecting and Development in Peru identify and address a potentially significant community issue. Shell had been using hovercraft to transport supplies along rivers. Local indigenous communities objected to the hovercrafts because they were noisy, physically frightening and were believed to carry demons. Through a culturally sensitive public consultation program, the company was able to address these concerns by: * making changes in hovercraft design to reduce noise * adding red boats to precede the hovercratt in order to forewarn community members * instituting stops so community members could inspect for demonis, and * stopping hovercraft usage on Sundays, a day with a large volume of competing river traffic. This consultation program helped the company identify the issue early and avoid potential delays and breakdowns in community relations. Source: .May |The Business Case for Community Devetopment CHAPTER 13 Good community relations, that involve both effective, Three reasons why companies do public consultation and positive community development community development work: impact, help minimize risks of added cost that come from * To earn a local license to operate poor community relations. In an atmosphere of poor community relations, minor disputes can escalate into * To create strategic advantage major disagreements that may do damage to a company's * To address specific business issues bottom line. Companies that do not respond in a constructive, culturally appropriate and consultative manner could face: * protracted delays and negotiations * criticism and protest in their areas of operation which, in extreme cases, could lead to destruction of company property or even violence * negative publicity in the local, national and international media * work stoppages and strikes * possible legal actions, and * boycotts of the company's products or services. - 'Local license' is a particularly important issue for companies or projects that: * operate in remote areas * operate in areas with disputed land tenure among local residents or between local residenits and the companiy or govermilent * have significant environmental and social impacts, such as impacts related to involuntary resettlement, cultural property or impacts on indigenous peoples, or affect access to natural resources * form a large part of the local or regional economy, and * are perceived as 'foreign' or from outside of the community. In these cases, community development programs may help a.company earn and maintain a 'local license' to operate by demonstrating a tangible commitment to working with and improving the lives of local people. CREATING STRATEGIC ADVANTAGE THROUGH COMMUNITY DEVELOPMENT PROGRAMS Companies can gain strategic advantage through proactive engagement of community concerns and through establishing effective community development programs. A reputation as a good corporate citizen with a solid community relatiQns and community development track record may open up new business opportunities throughout the world. For example: * resource companies with good community records may discover that governments are offering them concessions based, in part, on their social performance elsewhere * a good community development record could make expansion easier to 'sell' to communities, and * manufacturing companies that make a concerted effort to maximize local capacity and forward and backward linkages in supply chains can also find that the efforts pay off in the form of access to new markets. This will increasingly hold true as more companies begin to promote socially responsible business through their own supply chains. REFERENCE 1.4 In 1991, Levi-Strauss & Co. became the first multinational corporation to establish comprehensive Global Sourcing & Operating Guidelines. These guidelines govern sourcing for the company's apparel business. Among the components of these standards is a pledge to 'favor business partners who share our commitment to contribute to improving community conditions.' Source: Levi-Strduss web page 4 CHAPTER 1 The Business Case for Community DeveLopment| Large multinational companies have begun looking into ethical sourcing guidelir;. I r . contractors and suppliers. Two leading initiatives are the Ethical Trading Initiative supported by the UK's Department for Internatiohal Development, and the SA 8000 standard created by the Council on Economic Priorities. The initiatives are supported by NGOs and unions as well as major companies such as Avon, Toys R Us, Nike, Reebok, Liz Claiborne, Marks and Spencer, and Levi Strauss & Co. Proactive community involvement by manufacturers could help position companies to win more business from companies concerned with ethical trading. ' S~ee resource directory for web links COMMUNITY DEVELOPMENT PROGRAMS HELP FULFILL BUSINESS OBJECTIVES In addition to helping a company earn a 'local license' to operate, community developmerit programs can be targeted to meet specific business objectives. These objectives may include: * tackling development issues that could directly affect companies' business ,results such as HIV/AIDS, adult literacy and education, or public health (see Reference 1.5) * facilitating public consultation and communication between the company and communities on business issues such as resettlement, compensation/income restoration or pollution control (see Reference 1.6) * building positive relations with local governments * building goodwill with national governments * staff development through employee volunteering, and * improving staff morale and building a sense of corporate pride, particularly among local employees. REFERENCE 1.5 Companies use community development programs to fight HIV/AIDS Companies have discovered a competitive business advantage in fighting the spread of AIDS. AIDS devastates individuals, families and communities. In addition, AIDS adds to health and insurance hills, employee absences and forces companies to recruit ancl train workers to replace employees who die of A4 DS. In Thailand, the Grand Hyatt Erawan and the Pan Pacific, both large Bangkok-based hotels, have been leaders in the business effort to fight HIV/AIDS. Both companies have extensive worker education and training programs and free condom distribution for staff members. Both are active members in the Thai Business Coalition on HIV/AIDS and involved in AIDS prevention and treatment programs in the broader community. The two hotels also participate in a UNICEF project that offers training in hotel and life skills to young women from northeastern Thailand, the highest risk region for forced prostitution. In Zimbabwe, David Whitehead Textiles developed extensive HIV/AIDS educational programs after discovering that 21% of the donors in a company-sponsored blood drive tested HIV positive. The company involved employees and the national Department of Health in an effort to create theater groups to produce a play on AIDS. The theater group and company-trained AIDS Information Officers are involved in AIDS prevention and - education efforts for company employees and in theaters, nightclubs and schools in the cities where companv factories are located. In the first three years of the effort, sexually transmitted disease cases in company clinics fell by over 50% and condom distribution in company clinics increased dramatically. Source; WiMams and RayB FThe Business Case for Community Development CHAPTER I15 [:-K CONCLUSIONS: TOWARD STRATEGIC COMMUNITY DEVELOPMENT PROGRAMS Community development programs have-the potential to add immense business value to companies. This value can only be maximized, however, when companies plan community development programs strategically by: * Defining objectives - Companies should identify both potential business benefits of community development and the potential to meet the development needs of commurlities. This should help form a basis for setting goals and objectives for the company. * Understanding the expectations of communities and other stakeholders - Having a sense of the different expectations of communities and other stakeholders can help all parties discover potential conflicts and common interests. Starting a program around common interests can help companies and communities build trust, appropriate skills, transparency and define goals and objectives. * Forming partnerships to promote community development across business units - A community development program is more likely to benefit and gain support within a company if it involves key internal stakeholders. Senior managers, environmental affairs staff, operations personnel, purchasers, human resources staff, community and public relations staff, and employee organizations are all affected by and could benefit from a strong community development program. * Including community development in the company's mission - Including community development in the company's mission helps affirm its commitment to communities. This can also help reinforce internal support for community development. REFERENCE 1.6 A community development program helps with socially responsible resettlement When Tata Steel was planning a new steel plant at Gopalpur in Western India, it first turnecd to the Tata Steel Rural Development Society (TSRDS), the companv's communitv development program. The company wanted to establish good communications links with community members to prepare for the resettlement that would accompany the new plant. Thev relied on TSRDS staff, who had experience with community consultation and relations, to commence work in the area, and over the next four months built up a full-fledged communication resettlement and rehabilitation team. Source: Tata Steel REFERENCE 1.7 Including communities in company mission statements "AES wants to treat fairly its people, its customers, its suppliers, its stockholders, governments and the communities in which it operates." - AES Corporation, Principles and Practices "Our Responsibilities .... To respect the common interest * To participate in the life of the communities where we operate * To operate responsibly toward the environment . To be guided by the principles of integrity, openness ano respect in our commitments" - Lafarge Group, Group Ambitions and Values "The companv shouldl have among its objectives the promotion and growth of the national economy through increased productivity, effective utilization of material and manpower resources and continued application of modern scientific and managerial techniques in keeping with the nation's aspirations and the company shall be mindful of its social and moral responsibilities to the consumers, employees, shareholders, society and local community." -Tata Steel (India), Articles of Association, Article 3A 6 | CHAPTER I The Business Case for Community Development] CHIAPTER 2 DEFINING CON1MUNITY 17 suO9~~~~~~~~~~~~~~~~~~~~~~~~~~~ iL 4# -CD ~~~ t~~~~f) 0~~~c At~~~~~~~~ -10 copt%~~~~~~~~~~~ / ; - w g to include rural development. To spearhead an 'l intensive rural development effort, TISCO created a specialized team to determine the scope and nature of its involvement. TISCO commissioned a study by Xavier Institute of Social Service (XISS) that ~ ^ 7 *recommended the creation of a separate agency dedicated to rural communities. T ISCO decided it would be best to work through 1-4 T1SCOscommunitydevelopment . a community-based NGO due to the particular activities create trust between the character of the affected populations, their degree companyandlocalty,affectedpOeoptes. and type of interaction with the market economy and larger society, and the impact rapid political and economic change had had on their lives. A decentralized NGO under an umbrella organization with a small administrative core can often more easily obtain information on local issues, build trust and respond more flexibly to community needs, and partner with existing NGOs (e.g., irrigator and fishermen's groups). An NGO as conduit also enhances the program's sustainability especially in remote and/or culturally distinct communities and frequently enables the company to define a more effective exit strategy.l Working through an NGO on community development is not an entirely novel approach. However, forming a ;r. ;- ~ .new NGO rather than partnering with an existing one 3 The structure of an NGO that is a CBO is different from that of an NGO that is a cornpanys-sponisoied foundation. Foundationis tend to have a more centralized structure in which boards and companies exercise a greater degree of direct control over the choice of programs and partners. For this reason, foundations tend to subcontracudesignate responsibility of community hased implementation to cBos. Fat- Iron and Steel Company CASE STUDY 53 is relatively unique. This was the path taken by TISCO because they felt confident that their experiences in. r forming rural cooperatives early in the twentieth century plus the Tata Group's seventy-plus years, of investing in India's social development qualified them to run the NGO. Ultimately, this local NGO, the Tata Steel Rural Development Society (TSRDS), , which TISCO founded in 1979, grew into a full- fledged rural development agency' that became . . .. . highly decentralized with units in different cities and states in India. 7- Tata Steel Rural Development Society (TSRDS) - .d_ TISCO's work in rural development started as a small unorganized effort in 1958. Its prinicpal aim was to "undertake, promote, sponsor, assist or aid directly or - in any other manner" any activity that will promote - -_ social and economic development in rural areas where TISCO is located. When TSRDS was formed, it began rural development activities in a cluster of i . . 32 villages around lamshedpur. Over the years TSRDS has expanded its area of operations to encompass over 600 villages surrounding TISCO's major businesses in the states of Orissa and Bihar. TSDRS's current budget is Rs. 30-million (roughly $US 650,000). Organization and Management - TSRDS operates through seven local tinits and has its headquarters at Jamshedpur.-Unit Heads, who are drawn from the Rural and-Tribal Services Division of Tata Steel, manage the local units. Each Unit Head reports to the