CSR and Beyond

FROM PHILANTHROPY TO 'BEYOND CSR'

The narrative reflects much of the path that “meaningful giving” has taken in the Philippines, and may well reveal the future direction.

It began long ago with family philanthropy. Margarita Roxas de Ayala saw the need for good education for young girls. She set up what is now La Concordia College, donating the land where the school still stands in Manila and bringing Spanish nuns over to build and manage the school.

Fast-forward to 1961, when Ayala institutionalized philanthropy through Filipinas Foundation, the first corporate foundation in the Philippines. Now known as Ayala Foundation, this became a driving force in the exercise of corporate social responsibility, or CSR, in the Philippines in the past five decades.

The foundation has not only created, developed and sustained far-reaching programs on many fronts: socioeconomic, environmental, educational, and cultural. It also spearheaded programs in which other corporate foundations joined it as partners. At the same time, in collaboration with it or on their own, the Ayala business units have their own CSR programs.

Today, the Ayala group is taking an approach that may be described as “beyond CSR.”

A different perspective and approach

CSR continues to be the buzzword in the social involvement of business enterprises, but it has always been recognized as having natural capacity limitations. Often it ranges from pure donations and other such traditional approaches, to skills training and other such programs with more sustainable impacts. The help given is necessarily limited in scope and impact, especially if viewed against the magnitude of the country’s socioeconomic and environmental problems.

Moreover, CSR is separate from the business objective of maximizing profit; it is entirely on the allotted budget; it faces basic constraints in human resources and infrastructure; and often it is determined by personal values, by a “feel good” motivation.

And while the business enterprise works sincerely with the community for the community’s betterment, it remains separate from the community.

“I tend to take a different perspective and approach to ‘charitable giving,’" says Ayala Corporation chairman and CEO Jaime Augusto Zobel de Ayala. “Philanthropy must be strategic and must be undertaken in a manner that ensures its sustainability. We must go beyond traditional forms of philanthropy.”

Increasingly, his personal experience as an entrepreneur shows that creative market-oriented solutions are far more effective in providing solutions to lower-income and marginalized groups, says Zobel.

He has found eloquent expression of that approach in the January issue of Harvard Business Review magazine, in an incisive article by his former professor at Harvard Business School, the management guru Michael Porter, and another Harvard professor Mark Kramer.

"Creating shared value"

Porter and Kramer say in the article: “Not all profit is equal... Profits involving a social purpose represent a higher form of capitalism, one that creates a positive cycle of company and community prosperity.”

In what they call “the old, narrow view,” Porter and Kramer note that business contributes to society by making a profit—its profitability enables it to provide jobs, buy inputs, reinvest capital, and pay taxes. In this view, the company is a largely self-contained entity; community or social issues are outside its proper concern, as these are essentially government’s responsibility. The company and the community end up working in separate spheres.

Says Zobel: “Many of us have sought to blur these lines of separation and align our profit goals more specifically with the needs of the communities we interact with.”

In their article, Porter and Kramer call this idea of blurring the lines, “Creating Shared Value,” defined as policies and operating practices that enhance a company’s competitiveness while advancing the economic and social conditions in the community where it operates. The concept focuses on identifying and expanding the connections between company and community so that the community develops faster and, as a result, the company grows even more.

Zobel finds direct connection. “Meeting social needs should be embedded in our business models and should be undertaken using the same disciplines as those of business,” he says. “There are untapped opportunities across the base of the economic pyramid which, when addressed using market-oriented solutions, can become a viable market in itself. We are in a unique position as a business group to put resources to work to address this market effectively.”

The concept integrates investment and social intervention, capital and community collaboration. In the Philippines, it can mean operating in the low end of the socioeconomic pyramid, which many businesses almost immediately dismiss as an unviable market.

It is in fact a market for which the Ayala group has developed and delivers products and services—successfully and profitably.

A prime example comes from the group’s Manila Water Company, which delivers water supply and sewerage and sanitation services to more than six million customers in eastern Metro Manila.

The company has a flagship program, called “Tubig Para Sa Barangay,” designed specifically for areas with clusters of low-income communities, including informal settlers who previously had no access to piped water. These areas are very poor and have a severe problem with sanitation. A proliferation of illegal water connections has resulted in low-quality water that causes widespread health hazards.

“Tubig Para Sa Barangay” is not a CSR program although it has the elements of one. It is in fact a bottom-of-the-pyramid business model. Some people had said it would not work because the very poor would not pay for piped-in water.

As of today, Manila Water has gotten more than 1.6 million people into the program. These are people who in the past had to queue for long hours to buy water from vendors at very high prices. Now, they “pay far less for their water, with regular and predictable supply,” Zobel says.

At the same time, the water-borne diseases have been reduced, and the overall sanitation conditions in the low-income communities have improved.

The program required creativity and innovation and effort. “We had to use new business models, such as deferred payments, shared infrastructure to lower costs and community billing,” Zobel says. “But the results have been effective.”

Last year Manila Water posted a record net income of close to P4 billion, which it has reinvested in the infrastructure needed to strengthen its operations.

As Porter and Kramer might say, “shared value” has been created both for the community and for Manila Water.

Next wave of innovation and growth

The authors note: “The purpose of the corporation must be redefined as creating shared value, not just profit per se. This will drive the next wave of innovation and productivity growth in the global economy. It will also reshape capitalism and its relationship to society.”

Already, the Ayala group is on that wave. “In each of our businesses,” says Zobel, “we are now looking at the base of the economic pyramid as a legitimate market that needs to be served and which can be engaged profitably.”

Last year, Bank of the Philippine Islands and Globe Telecom Inc. launched BPI Globe BanKO, a licensed bank that uses the mobile-phone infrastructure and technology to serve low-income groups across the Philippines. “The breakthrough business idea was to create an institution that could transfer funds at a significantly lower cost level than a traditional bank,” Zobel explains. “By eliminating most branches and relying on text technology, we are able to transfer funds at lower costs to where the individual is.”

Opened in February 2010, BanKO today has three branches in Luzon, two in the Visayas, and one in Mindanao. It has made about P1.2 billion in loans to micro-entrepreneurs. It reaches 40 microfinance institutions that can, in turn, reach out to 200,000 customers.

In partnership with Ateneo de Manila University, BanKO provides training to microfinance institutions nationwide through a monthly program and tailor-fitted mentoring assistance. Recently it received a grant from the Melinda and Bill Gates Foundation for a Savings Mobilization Program.

In this example of creating shared value, “we generate a more inclusive developmental impact by providing access to financial services to many who previously could not open a bank account,” says Zobel, “while expanding our business objectives.”

Manila Water also has its own microfinance program, called "Kabuhayan Para Sa Barangay," which has benefited over 830,000 residents of its concession zone. These beneficiaries have opened their own microenterprises, such as eateries and retail stores.

Globe Telecom has created 750,000 retailers and distributors of telecom load. As JAZA points out, each is a micro-entrepreneur in his or her own right, generating combined revenues of P34 billion as of last year. “We have encouraged entrepreneurship at the base of the economic pyramid without sacrificing profitability,” he says.

The great-great-grandnephew of Margarita Roxas de Ayala says: “We need to think about personal philanthropy in much the same way that we think about our corporate investments. Reducing poverty, preserving our environment, and strengthening public institutions are just as important as developing products and services that respond to the needs of our customers.”

Nonetheless, the spirit of philanthropy continues.

“We devote about one-fifth of our time to social development endeavors, through partnerships with others, as our way of leveraging our own networks to help contribute to developmental initiatives,” says Zobel of his and his family's personal involvement in social responsibility. “I like to think that at the end of the day, we have to give back and help contribute to something bigger than ourselves.”

Visit the website of Ayala Foundation for more information about corporate social responsibility initiatives in education, youth leadership, sustainable livelihood, and arts and culture developed and supported by the Ayala group of companies.

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