Poverty Alleviation by Corporations Research Paper

Studies that have tried to establish a link between poverty and MNE strategy have focused on the relationship between foreign direct investment, employment, and income inequality (cf. Fortanier, 2007). It was found, for instance, that MNE affiliates pay on average higher wages than local firms and are more capital intensive. What this does to poverty alleviation, however, is difficult to establish.

Direct MNE employment creation can be considered more beneficial to skilled than unskilled workers. The quality of the employment provided by MNEs, thereby, is more often questioned. It has also been suggested that the policy competition between governments to attract FDI can sustain less stringent safety and health regulation, as well as lower wages—sometimes below subsistence level—thus creating a subclass of so-called working poor. Management studies today lack the firm specific strategic frameworks, the conceptual tools, and the firm specific data to address the poverty issue in all its dimensions.

This rather ambiguous state of affairs, however, has not prevented the issue from appearing prominently on the agenda of corporate decision makers. Neither did it prevent business gurus from devising formulas in which poverty is considered an opportunity rather than a threat. Consequently, the mood toward the involvement of firms in general and MNEs in specific in poverty alleviation is changing. Will this mood change prove sustainable or is it merely a new management gimmick? The answer to this question largely depends on a proper assessment of the involvement of firms in poverty alleviation and the nature of the issue. First, this research-paper takes stock of the way in which big firms can and do take up the issue of poverty. It discusses the many manifestations of poverty. Second, this research-paper explains how this challenge has become an “issue” for corporations. Third, it discusses how firms can deal with this issue and how leading (big) corporations actually have been dealing with the issue up until now. This analysis will finally help us to identify the challenges that are still ahead.

The Many Manifestations Of Poverty

Poverty reduction is generally acknowledged as the most important precondition for worldwide economic growth. Poverty goes together with weak human assets, a high degree of economic vulnerability, and chronic malnutrition due to insufficient purchasing power for (good/safe) food and water (Food and Agricultural Organisation, 2002). Poverty is associated with forced labor. Poverty causes child labor as children need to complement their parents’ insufficient income. Poverty breeds an unequal distribution of diseases in developed as well as developing countries. Poverty contributes to a lack in education (general and illiteracy in specific). Poverty leads to social and political discontent, triggers migration, and is a breeding ground for terrorism and corruption. Poverty triggers unsustainable agriculture practices and a less than efficient use of other scarce resources. Poverty basically comes in three sometimes overlapping forms: (a) absolute poverty, (b) relative poverty and (c) working poor.

Absolute Poverty

Absolute poverty is a relatively undisputed phenomenon in regard to its size, impact on economic growth, and human dignity. Poverty measurements are usually based on incomes or consumption levels. The minimum level needed to meet basic needs is called the “poverty line.” The preconditions for satisfying basic needs vary across time and societies. Living on $1 a day represents a situation of extreme poverty, whereas the $2-a-day margin still can be considered below the poverty line around the world. During the 1990s, gross domestic product (GDP) per capita in developing countries grew by 1.6% a year. The proportion of people living on less than $1 a day fell from 29% to 23% of the world’s population. While the number of people in extreme poverty decreased by 10%, the number of people living on less than $2 a day in the 1990s increased to 2.5 billion (World Bank, 2004). Poverty thereby is unequally distributed over the world. Around half of humanity earns less than what is considered the minimum to sustain a decent life ($1,500 PPP per year). The least developed countries (LDCs) are a group of 49 countries that the United Nations (UN) has identified as “least developed” in terms of their low GDP per capita. LDCs are specifically located in subSahara Africa. Even when the biggest part of the world’s poor are—by definition—located in the least developed countries, many of the industrialized countries contain substantial numbers of poor people as well. According to the UN Human Development Report in 1998, the percentage of poor people in the United States was 19% and 13% in the United Kingdom, whereas in France the number of poor people was registered at still 7.5% of the population.

Relative Poverty

Relative poverty is a more controversial concept related to an unequal distribution of income. The inequality in the world’s aggregate income distribution increased more or less continuously since the beginning of the 19th century until World War II, after which it stabilized. But in the early 19th century, income inequality arose mostly within countries, whereas at present more than half of it is found to be due to differences between countries. Income inequality hampers economic growth in particular at per capital income levels below US$2,000 (Barro, 1999; Easterly, 2002). Income disparity (even more than absolute poverty) has been considered the source of many other human problems including sickness, criminality, wars, education, and safety.

Income inequalities within societies are usually measured by the Gini-coefficient, which can range from perfect equality (0, everyone has the same income) to perfect inequality (1, where one person has all the income). The United States has the highest Gini-coefficient of all high-income countries (0.408 in 2004), whereas most European countries and Japan have a considerably lower Gini-coefficient (between 0.247 and 0.327; United Nations, 2004). Around 50 countries in the world—all low-income countries—have a more unequal distribution of income than the United States. Higher income inequality also breeds higher degrees of corruption (and vice versa). Income disparity in society is also strongly associated with the remunerations policies in leading companies. Research of Towers Perrin (see benefit database, www.towersperrin.com), shows that the income inequality within firms is particularly large in the United States, because of the remunerations earned at the top of companies. An average CEO in the United States earned around $1.9 million in 2002, whereas in Thailand or China, CEOs earn on average 5% of that amount.

Working Poor

Poverty is often associated with unemployment or working in the informal sector or “shadow economy.” Working-poor people are in fact working or looking for work in the formal sector (during at least 27 weeks per year in the United States), while earning an income below the poverty line. At the end of 2002, the number of working poor—defined as workers living on $1 or less a day—was assessed at 550 million. Defining the poverty line at $2 a day, the number of working poor increases to 1.4 billion people (2006 figures). Working poor represent a substantial group of the workers in developed countries as well. In 2002, the U.S. Department of Labor registered about 7.4 million working-poor people, representing around 5% of the work-force (U.S. Department of Labor & U.S. Bureau of Labor Statistics, 2005). In Europe, using a different definition, it has been estimated that 8% of employees in the European Union (EU) can be considered working poor (European Industrial Observatory, www.eio, eurofound).

The Geneology of an Issue: poverty Alleviation as a Business Responsibility

Issues are first and foremost societal matters that lack unambiguous legislation (Van Tulder, 2006). Prime examples of the existence of such a “regulatory gap” include the sinking of Shell’s Brent Spar storage tank in the Atlantic Ocean in the summer of 1995 and the question of whether or not to do business in Burma. There was no international legislation that prohibited the sinking of the Brent Spar nor was there a ban on doing business in Burma. Nevertheless, the issue materialized due to pressure by critical nongovernmental organizations (NGOs), which forced these firms to take action. The issue of “poverty” is more complex, because it cannot be “regulated away” by national legislation. In ethical terms, poverty alleviation represents a “positive duty” rather than a “negative duty” for corporations. Even the issue of minimum wages proved very difficult to regulate. Consequently, there is no government that requires firms to address poverty (or solve it) in any comparable manner as has been the case with environmental or human rights issues.

Issues, however, can also appear because of expectational gaps (Wartick & Mahon, 1994). Expectational gaps are created when stakeholders hold different views on what acceptable corporate conduct is and/or should be with regard to societal issues. It concerns the disjunction between the factual and actual interpretation (what is) and the desired interpretation (what should be). In this way, the birth of an issue marks a gap between being and belonging, between perceptions of corporate conduct or performance, and expectations of what it should be. So even if there is no real problem, an issue will develop once it is perceived as such. Poverty became a real issue for firms in the early 21st century in particular due to expectational gaps with a specific number of stakeholders. Such issues generally follow a life cycle: from birth and growth toward development, maturity, and settlement. What occasions have developed because of the poverty-as-business-challenge/ responsibility issue?

Birth And Growth: Triggering Incidents And Growing Societal Discontent

The growth of an issue occurs specifically when those first in command fail to address an issue adequately. The discontent grows even further when the issue can be clearly defined, is given a popular name, and the media latches onto unsuspecting protagonists. Examples include “Frankenstein Food” (introduced by Prince Charles) and global warming (supported by Nobel Prize Laureates and former vice president Gore). The transition into this phase is often initiated by a triggering event, usually organized by a visible and legitimate stakeholder. For the poverty-as-business-challenge issue, important triggering events became meetings of international organizations like the World Trade Organization, the World Bank, and the G8 Summits. Triggering concepts became “The Millennium Development Goals (MDGs),” “decent work,” “outsourcing,” the “Wal-Mart effect,” and the “race to the bottom.”

Absolute Poverty

The issue of absolute poverty has been on the agenda of governments for most of the post-war period. But renewed attention was triggered in the year 2000, when 189 countries formulated eight MDGs and specified halving poverty—defined as those people living on less than $1 a day—by the year 2015 as their prime goal (MDG1). Perhaps more importantly, an instrumental goal (MDG8) was formulated, in which partnerships with private corporations and a good business climate were considered vital to achieve sustainable development. The growing attention for the involvement of the business sector in the eradication of poverty was also picked up by multilateral organizations such as the World Bank and the IMF. They started to stress the importance of a favorable climate for doing business and the related importance of good governance for development. The intellectual foundation for this strategy was based on the research of Hernando de Soto (2000) who argued that important causes of poverty have been bureaucratic barriers and a lack of property rights—associated with a lack of access to credit—that prevent poor people from setting up their own businesses.

The issue of quickly achieving (some) poverty reduction has since been kept on the agenda due to a variety of NGO campaigns targeting international government meetings. A good example of the way in which this mechanism works is provided by the G8 Summit in July 2005 in Gleneagles (Scotland). This occasion triggered the “make poverty history” campaign. In a short influential clip, well-known film stars and musicians were able to present the issue probingly by snapping their fingers every three seconds with the text: “A child dies completely unnecessarily as the result of extreme poverty every three seconds” (Make Poverty History, 2007). The supporting book The End of Poverty by MDG architect Jeffrey Sachs (2005)—with a foreword by singer and entrepreneurial activist Bono— highlights the alliance of scholars and activists to keep the issue on the top of the agenda.

Relative Poverty and the Working Poor

The issue of working poor and relative poverty has been set on the agenda by trade unions since the beginning of the industrial revolution. In many countries, this issue became regulated through the institution of minimum wages—in particular in Europe where trade unions have been better organized and institutionalized. In Anglo-Saxon countries, a (decent) minimum wage has been much less obvious for fear of disturbing the smooth functioning of labor markets. In most developing countries, the issue is still in its infancy. With the increasing integration of developing countries into the value chains of western companies since the fall of the Berlin Wall in 1989 and the start of the era of globalization (two clear triggering events), the issue received renewed attention in particular by western trade unions. The most important allegation has been that a “race to the bottom” would materialize in which developing countries—but even developed countries—would start to relax labor regulation, and lower wages and taxes to attract multinational enterprises. The flip side of this statement has been that MNEs were accused of actively stimulating such a race by playing governments against one another in a search for the weakest possible regulation. The jury is still out as to whether this phenomenon is actually happening. The concept of a race to the bottom triggered greater attention for the issue of working poor (as well as for poor labor conditions).

As a consequence, the International Labor Office (ILO) intensified its campaign for decent wages. The question of decent wage levels and fair labor remuneration practices had always been at the center of the ILO’s actions. Already its original Constitution (1919) referred to the “provision of an adequate living wage” as one of the most urgently required reforms. However, the ILO conventions are notorious for their lack of ratification by member states. The concept of decent work or living wage triggered attention when western firms announced plans to relocate, outsource, or offshore facilities to low-wage developing countries. Since the end of the 1990s, many elections in developed countries have had the outsourcing/off-shoring issue as a core point of dispute.

“Fair labor” and “fair trade” movements targeted in particular the issue of working poor as a result of the unfair operation of the international trading system and the (perceived) negative consequences of the inclusion of workers in the international supply chains of multinationals. The anti-Nike campaign in the 1990s on the use of child labor was followed by the “clean clothes” campaign and a large variety of “stop child labor” campaigns.

Finally, the struggle for decent wages and the problems associated with working poor received a new corporate icon by the actions against Wal-Mart, the world’s biggest retailer and private employer. It was claimed that Wal-Mart sales clerks are paid below the federal poverty lines. The anti-Wal-Mart campaign “the high cost of low price” suggested that Wal-Mart employees also make intensive use of social security. Consequently, the issue of working poor received a name: the “Wal-Mart effect” (see for instance Business Week, February 6, 2005). Discussing the challenges of the Wal-Mart effect has become part of a scientific debate that builds partly on the ideas of the sociologist Ritzer in the early 1990s who talked about the “McDonaldization of society” (Ritzer, 1993). In both cases, a corporate icon triggers an issue. The Wal-Mart effect adds to this sociological perspective the economic danger of deflation in which lower wages and associated poverty lead to insufficient purchasing power and ultimately a negative growth spiral for the whole economy.

Development and Maturity: Measurement and Implementation

An issue enters the development phase when important stakeholders, individually or collectively, demand concrete changes to corporate policies and scholars develop models, approaches, and strategies that can solve the issue. In the mature or settlement phase, the issue is addressed by concrete strategies, new legislation and the like, which implies that the expectational gap gets bridged. If corporations do not develop credible strategies in this phase, the issue remains controversial—depending on the relative strength of the stakeholders and on the extent to which “issue fatigue” can also appear. The triggering events precipitated a large number of initiatives, some of which already existed long before the actual events appeared.

Measuring the MDGs

The concrete aims of the MDGs stimulated a number of organizations to try to measure the concrete contributions of corporations to achieving these goals. The contribution of the private sector to MDG1 was first identified by the UN Millennium Project (2005) itself as (a) increasing productivity, (b) creating jobs, (c) paying taxes, and (d) the supply of necessary goods for reasonable prices. The Global Reporting Initiative (GRI, 2004) additionally tried to link the core activities of businesses to the MDGs in the form of concrete reporting guidelines. GRI considered (a) creating affordable products, (b) building local linkages, and (c) creating employment opportunities as key indicators of MDG1. In particular, measuring the creation of jobs in the formal sector is considered critical in escaping the poverty trap. It was also proposed—but not implemented—to look at employment and job creation in distressed or disadvantaged regions to make this indicator more specifically useful for MDG1. Measuring the direct contribution to poverty alleviation itself, however, proved too difficult and too politically sensitive. The concept of poverty was deemed too multifaceted and too complex. GRI also wanted to avoid the introduction of a misleading measure like the $1-a-day measure of poverty. Instead, the 2006 update of the GRI guidelines (G3) chose for a set of more general social and economic indicators on working conditions. Another measurement project was pioneered by the Dutch Sustainability Research Organization (DSR, 2007). First applied to the ABN AMRO bank and later also to Philips, Akzo Nobel, BHP Billiton, and TNT, the project identified two indicators particularly relevant for MDG1: (a) community development (local entrepreneurship, the provision of essential products and services) and (b) the provision of employment and living wages (through local recruitment, living wages, the right to organize, and the attention to vulnerable groups). The exercise primarily measures intentions rather than performance. It is planned to make this MDG Scan available on the Internet.

Labeling

Labeling enables a company or a group of companies to communicate its commitment to society and provide consumers with information on the quality and contents of products. Especially fair trade labels aim at communicating the corporate approach to poverty alleviation. The first “fair trade” label was introduced in the late 1980s in the Netherlands. The issue of labeling as a way to deal with poverty picked up steam since 2002 when Tesco, the United Kingdom’s largest retailer started selling fair trade bananas. The label serves as an “independent guarantee that disadvantaged producers in the developing world are getting a better deal” (i.e., a fair price). The fair trade movement thus aims at poverty alleviation through the fairer operation of international markets. But it remains exceptionally difficult to address a complicated CSR problem by means of a label. Consumers do not always convey the message correctly and there is hardly any internationally coordinated accreditation of labels. The market penetration of fair trade labels is therefore still below 5% in most product markets. A vital problem with increasing the effectiveness of labels is how to coordinate and monitor them. Active firms are inclined to adopt their own label as a unique selling point toward customers, but coordination and standardization (for instance through the Fair Trade Foundation) is often required to make the label into an actually effective poverty alleviation strategy.

Codes of Conduct

Codes of conduct can help corporations level the playing field and promote standards that can overcome the “regulatory gap.” A cascade of codes has developed, some of which refer to the issue of relative poverty and the working poor, through provision on labor conditions. But not many dealt directly with poverty alleviation (Kolk, Van Tulder, & Westdijk, 2006). Industry codes that focused on labor conditions were introduced, for instance, in toys (1995), apparel (1997), sporting goods (1997), fertilizers (1990, 2002), iron and steel (1992, 2002), cyanide (2000), mining and metals (2000), and coffee (2004). Also coalitions (or networks) consisting of corporations, governments, and NGOs started formulating standards, declarations, or guidelines. Particularly relevant for poverty alleviation have been the Ethical Trading Initiative (ETI) developed in 1998 (Ethical Trading Initiative, 2007) and the Fair Labor Association also created in 1998 (Fair Labor Association ,2007). In particular, the ETI Base Code tried to apply a multidimensional definition of well-being and poverty for instance by referring to a “living wage” and “no excessive working hours” (Institute of Development Studies, 2006).

Codes of conduct proposed by international NGOs generally include much stricter, specific, inclusive, and measurable criteria than company codes. International NGOs also place high value on external monitoring and verification, as well as on clear sanctions in the event of failure to comply with the codes By contrast, research on the content of codes of conduct (Kolk & Van Tulder, 2005) shows that companies favor internal monitoring of compliance with the code. Hence, NGOs keep questioning the likelihood of compliance with codes—the probability that companies will conform to their codes of conduct and behave responsibly. The content of most international codes or guidelines is still relatively weak. They are rarely monitored objectively for compliance, contain often only a few verifiable criteria, and tend to lack a thoroughly worked-out objective. For a large part, this can be attributed to the nature of issues like poverty that are often too complex to capture in codes.

Bottom of the Pyramid (BOP)

Since 2002, a number of business scholars started to stress the opportunities in doing business with the poor. In particular, the “bottom-of-the-pyramid (BOP)” approach (Prahalad & Hart, 2002) has become popular. In the words of Prahalad (2005), it should be possible to “eradicate poverty through profits.” The fortune to be gained at the BOP (Prahalad & Hart, 2002; Prahalad, 2005) referred to the 4 billion people who live on a per capita income below US$1,500 (PPP). Combined, these people represent a “multitrillion dollar market” that outsizes industrialized countries—certainly for basic commodities such as food and clothing.

The BOP thesis presents a compelling business case for poverty-oriented strategies, but not many contributions have yet examined specific strategies for actually reaching that bottom. Since its inception, the number of critics has also mounted. In case multinational enterprises provide complementary job opportunities and create new markets for cheap products that did not exist (such as mobile phones, for instance), the BOP strategy works in alleviating poverty. But part of the market at the bottom of the pyramid is in practice already served by local firms and the informal economy. Multinationals can crowd-out more local firms and local employment than they create. Finally, at the real bottom of the pyramid, the purchasing power of the population is much less attractive (and the transaction cost to reach considerably higher); so in practice the BOP strategy has already been redrafted into a “base-of-the-pyramid” strategy—a far more modest approach than the original claim.

Therefore, there are basically two types of BOP strategies: a narrow BOP strategy that only focuses on the market opportunities and a broad BOP strategy that takes the wider repercussions and the net effects of the strategy into consideration. The latter also requires that critical NGOs be involved in evaluations of the strategy. A good example of a broad BOP approach is provided by the learning partnership of Oxfam/Novib and Unilever. In a case study of Unilever Indonesia, they explored the link between international business and poverty reduction (Clay, 2005). They were unable to reach any conclusions, however.

Microcredits

Microcredits provide an entrepreneurial way out of poverty. The micro-credit movement started in Bangladesh and India in the 1980s and received global recognition in the 21st century—with the UN declaring 2005 “Microcredit year” and the 2006 Nobel Peace Prize awarded to Mohammed Yunus, founder of the Grameen Bank. Micro-credits not only provide cheap capital to poor people, but also give high yields for the banks involved. In 2006, around 125 million people were involved in micro-credit schemes. But the microcredit movement developed largely outside of the mainstream (multinational) banking system and was part of local (small) private-sector development initiatives. In case big western firms take up the provision of microcredits, two strategies can be distinguished: microcredits as a relatively marginal activity (managed for instance by the corporate philanthropy department) and microcredits as a core business activity (with substantial volumes). The latter has not really materialized so far.

Business Approaches Toward Poverty

Poverty eradication as a business challenge is still in the approximate development phase of its life cycle. The issue is far from being mature, let alone resolved. Triggering events have resulted in relatively concrete aims and goals. New concepts have been developed that structure the debate, but the issues are not yet resolved, let alone clearly addressed. New concepts are not undisputed, the operationalizations are not always clear and are not well coordinated, whilst the relationship between business strategies and the resolution of the issue at hand are not yet clear as well. There is abundant room for “PR” activities of firms in which a concept (like microcredits or the BOP) can be embraced only to ward off critical stakeholders. The area is relatively new for firms, stakeholders, and researchers alike. Given this degree of uncertainty, what concrete strategies can firms develop?

This is the area of corporate social responsibility (CSR). But the catch-all category of CSR in fact obscures important strategic variability and contextualization. The contribution of CSR strategies to align the interests of the poor depends on the circumstances and the concrete elaborations of business strategies in developing countries (Blowfield, 2005). While a more advanced categorization could be made, for the purpose of this research-paper, we suggest four approaches with different procedural attributes in which the very CSR abbreviation also has four different meanings: inactive, reactive, active, and pro/interactive (cf. Preston & Post, 1975; Van Tulder, 2006). The continuum of CSR business strategies is conceptually related to the basic distinction in conventional moral theory between what is required and what is desired, or between the “morality of duty” and the “morality of aspiration” (Michaelson, 2006). Table 10.1 summarizes the most important characteristics of these four approaches to CSR and suggests some operationalizations of indicators of poverty strategies.

The inactive approach reflects Friedman’s classical notion that the only responsibility companies (can) have is to generate profits, which in turn generates jobs and societal wealth and can therefore be considered a form of CSR. This is a fundamentally inward-looking (inside-in) business perspective, aimed at efficiency in the immediate market environment. Entrepreneurs are particularly concerned with doing things right. Good business from this perspective equals operational excellence. CSR thus amounts to “corporate se/-responsibility.” This narrow approach to CSR requires no explicit strategy toward poverty alleviation. It aims at the prime fiduciary duties of managers vis-à-vis the owners of the corporation, which could imply affordable products and job/employment creation, but only as an indirect by-product of a strategy aimed at profit maximization. When faced with the trade-off between job creation and efficiency enhancement (or shareholder value maximization), these firms will chose the latter. The company is relatively indifferent toward the issue of poverty.

The reactive approach shares a focus on efficiency but with particular attention to not making any mistakes (“don’t do anything wrong”). This requires an outside-in orientation. CSR translates into corporate social responsiveness. Corporate philanthropy is the modern expression of the charity principle and a practical manifestation of social responsiveness. In this approach, the motivation for CSR is primarily grounded in “negative duties” where firms are compelled to conform to informal, stakeholder-defined norms of appropriate behavior (Maignan & Ralston, 2002). The concept of conditional morality in the sense that managers only “react” when competitors do the same is also consistent with this approach. This type of firm deals with the issue of poverty primarily when confronted with actions of critical stakeholders, for instance in the area of the working poor and in an effort to limit the negative influences of firm strategies on poverty or restore corporate legitimacy (Lodge & Wilson, 2006). Primarily in reaction to concrete triggering events—and often not spontaneously—these companies legitimize their presence in developing countries or in socially deprived regions by arguing that they potentially transfer technology, contribute to economic growth, and create local job opportunities, but without specifying it in concrete terms or taking up direct responsibility. The company wants to reduce its vulnerability about poverty. Poverty (the bottom of the pyramid) becomes an opportunity when the growth possibilities in the existing markets are declining. The bottom of the pyramid is primarily the base of the pyramid. Support for guidelines like the UN’s Global Compact—that is neither specific nor requires high compliance likelihood—is the typical approach of a reactive CSR strategy (see Kolk & Van Tulder, 2005).

An active approach to CSR is explicitly inspired by ethical values and virtues (or positive duties). Such entrepreneurs are strongly outward-oriented (inside-out) and they adopt a positive-duty approach. They are set on doing the right thing; CSR in this approach gets its most well-known connotation—that of corporate social responsibility (CSR). This type of firm has a moral judgment on the issue of poverty and tries to come up with a number of activities that are strategic (core activities) and/or complementary to its own corporate activities. For example, such firms can define what decent wages are and can come up with substantial philanthropy activities toward poverty alleviation in markets where it is not active. The reactive firm will primarily locate its philanthropy near its corporate activities (thus the growing attention for so-called strategic philanthropy). The active company accepts (partial) responsibility for the issue of poverty especially where it is directly related to its own activities and responsibilities. Poverty (the bottom of the pyramid) is explicitly addressed as a morally unacceptable issue for which entrepreneurial solutions may exist. The (indirect) job creating effects of the company with its suppliers are also specified. In case this company embraces microcredits, it is not only seen as a regular market opportunity or a PR instrument, but also as a strategic means for reaching the real bottom of the pyramid for which concrete criteria should be developed to measure its effectiveness and create ethical legitimacy.

A proactive CSR approach materializes when an entrepreneur involves external stakeholders at the beginning of an issue’s lifecycle. This pro-active CSR approach is characterized by interactive business practices, where an inside-out and an outside-in orientation complement each other. In moral philosophy, this approach has also been referred to as discourse ethics, where actors regularly meet in order to negotiate/talk over a number of norms to which everyone could agree (cf. Habermas, 1990)—doing the right things right (or doing well by doing good). This form of corporate societal responsibility (Andriof & Mcintosh, 2001) shifts the issue of CSR from a largely instrumental and managerial approach to one aimed at managing strategic networks in which public and private parties have a role and firms actively strike partnerships with nongovernmental organizations. Firms that aim at a proactive poverty strategy are most open to the complex and interrelated causes of poverty and acknowledge that poverty can only be solved through partnerships and issue ownership of all societal stakeholders involved. This type of firm is also willing and able to see the problematic relationship between low wages and/or low prices with low economic growth, which could hamper a more structural approach to poverty. A possible legal elaboration has been provided by Lodge and Wilson (2006) who introduced the construct of a “World Development Corporation”—a UN-sponsored entity owned and managed by a number of MNEs with NGO support.

Specific Implementation: From Frontrunner Firms To Mainstream Business Strategy?

in an earlier study, we explored the codes of conduct on poverty of a number of frontrunner MNEs (Kolk et al. 2006). Most of these firms were not (yet) very outspoken about poverty alleviation, whereas the compliance likelihood of their codes of conduct relevant for poverty alleviation remained rather limited. Companies tended to address only a few dimensions of poverty, in particular so-called content issues that were directly relevant to work conditions. Broader approaches that had the largest potential to help eradicate poverty such as local community development, training, and monitoring and relative poverty were hardly ever addressed. Although the approaches of front-runner firms showed considerable divergence, on a sectoral level a higher level of resemblance could be observed. MNEs appear only willing to state active commitment if others in their sector do as well. We inferred that MNEs might fear that, because of their involvement in poverty alleviation, they might lose out to others that do not have a strong policy (and/or that pretend to be active but fail to enforce it). So, whereas pressure from civil society puts a “floor” (a minimum level that is expected) on CSR in a sector, at the same time, competitors—other MNEs in this sector—can also put a “ceiling” on CSR when it comes to being involved in alleviating poverty.

Factors that seem to shape the inclination of MNEs to show commitment to poverty issues are firstly size and product familiarity for large groups of consumers and their readiness to put societal pressure on companies. Next, the domestic origins, the home-country institutional context, of MNEs seemed to play a considerable role. Compared to U.S. and Asian companies, European MNEs show a greater tendency to proactively approach poverty. Finally, firms with a spread of activities over developed as well as developing countries seem most prone to being involved in the development of poverty-alleviating policies. Other research on the CSR reporting strategies of Fortune’s 2004 Global 250 firms (KPMG, 2005) found that, compared with environmental issues, the coverage of social and economic issues and topics is far more superficial. Although social topics (core labor standards, working conditions, community involvement, and philanthropy) are discussed by almost two thirds of the companies, reporting performance remains sketchy. it was also found that especially European firms that release a sustainability report are active in reporting on their economic impact on the host (developing) economies in which they are operating (Fortanier & Kolk, 2007).

For this research-paper, we went one step further and made a first inventory of the overall poverty-related strategies of the 100 largest Fortune Global firms from 2006. We applied the framework of Table 10.1 to each of these firms in order to classify their strategy. We analyzed codes of conduct, Web sites, and corporate sustainability reports of each of these firms. Half of the Global Fortune 100 list of 2006 comprises European firms, around one third comprises American firms, whereas one sixth is made up Asian firms. Around 58 of these corporations had undertaken some initiative on poverty. At least four firms (Citigroup, no. 14 on the list, Deutsche Bank, no. 48, Electricite de France, no. 68, and Deutsche Post, no. 75) explicitly communicated a moral statement that poverty is unacceptable. Some corporations acknowledge the issue of poverty, but link it primarily to economic growth—thus supporting the mainstream approach to poverty alleviation, which does not require an active corporate involvement. For instance, Matsushita Electric (no. 47 on the list) argues in its 2006 Global Corporate Citizenship report that “at present, the world has a large number of people living in poverty and needs a level of economic growth sufficient to raise their standards of living.” Other corporations express more explicit (active) concern over poverty and link it to their own corporate responsibilities. For instance BP (no. 4) in its 2005 sustainability report states that its “primary means of making a positive impact on poverty is through aligning our own operations with local people’s needs.” Petrobras (no. 86) states in its social and environmental report of 2005, “What motivates us is the ongoing quest to improve the quality of life in the communities in which we operate. Our initiatives are in areas such as job creation, income generation, combating poverty, and hunger.”

One out of five corporations is searching for partnerships with NGOs and international organizations on poverty. A similar percentage had also developed poverty-oriented programs in their philanthropy activities. The Shell (no. 3) foundation, for instance, aims to support sustainable solutions to social problems arising from the links between energy, poverty, and environment with a $250 million endowment.

It issued a well-received report, “Enterprise Solutions to Poverty.” However, intentions and philanthropy activities do not necessarily reveal the implementation of concrete core strategies. So we considered in more detail to what extent the 100 largest firms in the world today are making their commitment to alleviate poverty more concrete. One out of ten firms on average—in particular American and Japanese firms—consider the provision of affordable products as an important contribution to poverty alleviation. One out of four firms on average (24 firms) identified the creation of local employment opportunities as an important way to reduce the extent of poverty; half of the firms with that opinion (12) further specified they reduce poverty by stimulating indirect employment at their suppliers. Decent wages, however, are only defined by four corporations.

Another way of concretizing an ambition is to link to international initiatives and codes. For instance, 43 of the 100 largest firms subscribed to the UN’s Global Compact in the 2000-2006 period (36 of which are European corporations). But the Global Compact only provides general and indirect reference to poverty, whilst it is very weak on implementation. Seventeen corporations have expressed general support for the MDGs. One quarter of the European firms, and less than 7% of the American and Asian firms, support the MDGs. A number of European firms have been very active in further operationalizing the MDGs for their business context. Firms like Royal Dutch Shell (no. 3) and ABN Amro (no. 82) have explicitly linked their sustainable reporting to each of the eight MDGs. In regard to poverty-related international codes and labeling initiatives, the most popular initiative up to now has been the Fair Trade label, which has been endorsed for a number of products in their product range by at least four international retailers. The Ethical Trading Initiative is supported by three corporations, two of which are American computer and office equipment producers. On average, however, most large companies still tend to favor their own labels and poverty-related codes, whilst not endorsing already existing codes or standards—such as the ILO standards.

Finally, we distinguished in this research-paper two entrepreneurial approaches toward poverty alleviation—microcredits and the BOP—for which corporations can adopt a narrow and a broad strategy. In regard to microcredits, many firms have embraced the idea. Twenty-three firms from a wide variety of industries consider microcredits an interesting option as a complement to their main business strategy. For example, ExxonMobil has a number of partnership projects with U.S. AID on microfinance in areas related to its oil projects (Kazakhstan & Sakhalin in Asia, for example). The corporation presents its microfinance activities as “one of many ways ExxonMobil fosters education and increased opportunities for women.. .as part of the company’s community investment initiative” (2005 Corporate Citizenship Report). An additional 9 of the 17 banks in the sample present microcredits as an interesting part for their general business strategy. The Dexia Group (no. 55), for example, asserts itself as one of the world leaders of the international financial market of microfinance, with total assets of around $89 USD in 2005 (Sustainable Development Report, 2005). Other international banks have followed suit, making microcredits a mainstream instrument. The actual volume of the efforts, however, remains rather limited, which serves as an illustration of the relative difficulty with which this market can be developed. Microcredits, therefore, are still a relatively marginal activity for most banks.

In regard to the BOP, leading firms are still rather ambiguous. Eight of the 100 largest firms have mentioned the BOP as a possibility, but have primarily embraced it as yet another market change to sell products in a poor region. Only two firms (Citigroup, no. 14; Nestle, no. 53) have argued in favor of a more broad BOP strategy in which they develop an explicit view on how this strategy actually addresses poverty alleviation because of direct and indirect effects.

Table 10.2 summarizes the first general results of the previous exercise. It shows the relative position in terms of the CSR approach to poverty of the 100 largest Global Fortune corporations in 2006. Forty-three of these firms could be positioned in one of the four CSR categories, 52 firms combined two (adjacent) CSR categories, whilst 4 spread their activities over three categories.

Around two thirds of the corporations have adopted an inactive and/or a reactive strategy toward poverty. The four corporations that were classified proactive have still adopted rather modest strategies in this area, whilst also embracing reactive and active traits. No corporation can be classified as wholly proactive, whereas 40% of the corporations can indeed be classified as completely inactive.

Typical (pro)active strategies are primarily embraced by European corporations, whereas the typically inactive strategy is embraced by Asian corporations. American corporations are somewhere in between, however, with a strong inclination toward the adoption of inactive and reactive strategies. This involves a “buffering attitude” toward critical NGOs that address the issue of poverty. A good example is provided by Wal-Mart (no. 2), which in response to the allegations contained in the Wal-Mart effect first created a public relations “war room” in 2005 and, next, sponsored a “working Wal-Mart families” site that stresses the importance of the jobs provided by Wal-Mart for the local community. In its other communications, Wal-Mart stresses that it offers affordable products to customers—with the suggestion, although not specified, that this might substitute for the weak buying power of its employees. “If we can go without something to save money, we do. It’s the cornerstone of our culture to pass on our saving. Every penny we save is a penny in our customer’s pocket” (Wal-Mart, 2007). Most Wal-Mart’s actions are reactive, with no effort to work on the issue of poverty in collaboration with critical societal groups.

Table 10.2 also specifies the strategic scores for a number of industries. Motor vehicles, electronics, and retailers are, on average, the least active in poverty alleviation. In these sectors, the internal sector dynamics has put a ceiling on individual activities toward poverty alleviation. Active and proactive attitudes toward the issue of poverty involve bridging strategies. Table 10.2 shows that these bridging strategies are more easily adopted in Europe, especially by the banking and petroleum-refining industry. Regulation in Europe as well as with these specific industries has created a floor on which more active poverty alleviation strategies have been required (Kolk et al. 2006).

Conclusion

Although most entrepreneurs and corporations do not yet see the alleviation of global poverty as a strategic priority (Singer, 2006), this research-paper has shown that the issue has steadily climbed up the corporate strategy ladder. The bottleneck of making poverty reduction a real strategic priority in which firms adopt active or proactive strategies has to do less with the complexity of the issue and more with the regulatory framework in which firms are operating, as well as their conception of “poverty” that can be addressed by their strategies. Narrow approaches for entrepreneurial solutions to poverty prevail. It is not easy to change the strategic orientation of a big corporation. But the narrow approach also receives more attention because broader approaches have not yet been elaborated and operationalized into scientifically sound models and generally accepted principles and guidelines.

This research-paper showed that a limited number of corporations have adopted guidelines and labeling relevant for addressing poverty. Poverty is a global problem and it is therefore logical that general guidelines be developed. The MDGs have triggered the attention of an increasing number of firms, but a clear bottleneck remains the difficulty of operationalizing the MDGs in clear measurement, including reporting standards such as GRI.

Finally, MNEs can also be held back by sector issues and dynamics. Keeping the dialogue at the global level and treating all MNEs from different sectors the same way (as tried, for example in the United Nation’s Global Compact efforts) and focusing on compliance with one and the same standard will (and does) not work. Different sectors face different problems and are at different stages when it comes to alleviating poverty. So a way forward in this regard might therefore be not to approach single, individual (often high-profile) MNEs, as some NGOs and international organizations tend to do, but to create an enabling environment that facilitates dialogue and subsequent action at the sector level. Complementary, GRI and other international organizations might develop reporting guidelines and specific poverty alleviation indicators per sector.

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