Doing business with the world social change and future trends that will afffect CSR


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Insight Corporate Excellence

Social Changes and CSR Trends of the Future

Global challenges are making business a much more complicated terrain. How can one handle these challenges and manage them from the CSR point of view? Global affairs such as recent upheavals or environmental problems place geopolitics in the center of corporate strategy.

The past forms the future. In order to operate in a globalised world it is necessary to know the history, the social context, politics, culture and economy of different countries and regions. This should be combined with good knowledge of the source of value for one’s business and how the company’s interests are aligned with the interests of the global society and the changing social environment.

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Doing business with the world social change and future trends that will afffect CSR

  1. 1. InsightsStrategy DocumentsI03/2011Public AffairsDoing business with theworld: social changes andfuture trends that willaffect CSR A series of global challenges means doing business is becoming much more complex than it used to be. How can we face up to these new challenges and deal with them in the context of CSR? Events like the recent uprisings in North Africa or environmental disasters such as the Japanese earthquake mean that geopolitics now occupies a central place in business strategy. Doing business round the world, respecting the The role of history in the globe or doing business with the world? Three sustainable approach different viewpoints, three different approaches Knowing about a country’s history gives us a representing the three stages through which the special insight into its background and helps relationship of business with society and the envi- us understand its internal, ethnic and national ronment, centered on respect, has moved till now: rivalries when dealing with local business partners, From the concept of just “being”, to an approach clients, suppliers and employees. It does not centered on respect and now, finally, one that is necessarily mean having to take decisions based on focused on cooperation. this knowledge, but it does mean that sensitivity in this area can contribute greatly to the success of a The world evolves and so do society and organizations. company’s operations. The challenges faced become more numerous, more complex and difficult to deal with. How can we In the context of globalization, a knowledge of tackle such very different events as the recent social history also provides us with keys to behavior in and political unrest in some Arab countries and what may often be an uncertain future. For example, natural phenomena causing devastation that result China is one of the fastest-growing countries for in serious environmental problems? international business activity within its territory and yet most executives who move there have no According to Mike Rosenberg, Assistant relation to the country, know next to nothing about Professor at IESE Department of Strategic its history, have a simplistic view of the situation Management, geopolitics is one of the elements centered on China’s growth figures and the time that must be developed and incorporated into it will take the country to pull ahead of Western companies’ sustainable management, to enable economies(in the famous words of Mao Tse-Tung: them to understand, respect and interact with “China is like the atom: when her energy is released this growing situation. its power will be unstoppable”).
  2. 2. Doing business This is similar to trying to operate in twenty-first key confidence factors for setting up good businesswith the world: century Europe by only looking at the macro- and trading relations, as well as the values on whichsocial changes andfuture trends that economic situation, without considering the these are based.will affect CSR underlying social and geopolitical issues. Forecasts for the 1940s would have been incredibly good – For this reason, more and more business schools if it had not been for two consecutive World Wars world-wide are including modules on the study which caused millions of deaths, and an economic and management of geopolitical issues in their recession between the wars which ruined Western head management and CEO training programs. economies. Similarly, large multinationals appoint ex- presidents and prime ministers and ex-chairmen One of the burning problems in modern China of international organizations as independent is the gulf between growth in the coastal regions directors to their Boards, to benefit from their compared to inland areas. The Beijing government view of the global economy and their experience is investing in infrastructure to improve and alleviate of the interaction between geopolitics and this situation to a certain extent, but there is a corporate governance. serious, hidden danger of territorial disintegration which could reproduce events in the tenth century Global consultants also draw up studies and when China broke into ten independent states at reports on the emergence of new issues such as the the end of the Tang dynasty. geopolitical and economic risks to be taken into account by large companies in order to make the Geopolitics for a changing world right decisions and plan ahead correctly. ‘One must Similar reasoning applies to the study of politics The connections between business leadership, and their relation to a given situation in a particular progress area of the world. This includes changes in local economic policies, the social situation and from a political leadership and how a country gets on with world governance are obvious and future trends can indicate concerns to which Management neighboring states: not only in order to assess risk point of but also as a way of estimating new opportunities Committees world-wide will give priority: view based for companies. • Energy and geopolitics.on “being” In this sense, the digital breach is fuelling rapid • Globalization and growth. to an ap- change. There is a growing convergence between • Anarchy, war and disaster. digital, financial and political sectors and the proach fo- behavior of interest groups. National differences, in • Environmental sustainability. cused on turn, based on cultural administrative, geographical, • Technological innovation. linguistic, ethnic and economic considerations, are • Aging and immigration. “respect”and finally, Emerging economies and country risk attain one Example of a Comparative Risk Assessment In technical terms, the four types of risk associated with overall risk as a country are the following:that is cen- tered on More than 1 trill. 1. Political risk: probability of confiscation or expropriation of capital, as well as the “co-opera- 250 billion - 1 trillion difficulty of repatriating assets and persons. Severity (in US$) tion”’. 50 - 250 billion 2. Sovereign risk: the probability that a State will totally or partially default on its debt by deciding definitely not pay off a loan. 10 - 50 billion 3. Transfer and liquidity risk: probability that a business in debt is unable to meet 2 - 10 billion payments because of official restrictions. 4. Macroeconomic risk: probability that a lender 0 is unable to offer a loan due to problems 0% 10% 20% with a country’s economic framework. Likelihood Natural disasters International terrorism Different international organizations, such as the Fiscal crisis Loss of freshwater International Monetary Forum, rating agencies Nanotechnology risks Collapse of NPT Infectious disease, Pandemic such as Standard Poor’s, the World Bank developing world Globalization or investments banks such as JP Morgan use Transnational crime Natural disasters different methods to carry out studies and draw and corruption Natural disasters Interstate civil wars Natural disasters up indices to advise businesses about investment Food insecurity Natural disasters and operational risks and the risk of working in a Source: World Economic Forum; 2011. given country. Insights 2
  3. 3. Doing business The principal indicators should cover: Finally, a further aspect to take into account is the with the world: existence of countries or regions in which there is social changes and future trends that • Economic performance. always a high exposure to risk - for example, the will affect CSR • Institutional conditions. risks from natural disasters in some areas of Asia and the Americas, or risk because of racial tension, such • Total debt. as Central and Southern Africa and the Middle • Balance of payments on current account. East, or in regions where there are problems with • Access to bank financing. energy supply, such as North Africa and some parts • Legal security of investments. of Eastern Europe. • Social and cultural tensions. Geopolitics and Social and • Wars. Corporate Responsibility World forums, at which the leading politicians from The principal risk indicators are: the most powerful countries in the world meet, such as G8 or, since 2007, G20, have given CSR • EMBI (Emerging Markets Bond Index): the same importance in business as concerns such as an economic index issued daily by the climate change, international security, sustainable JP Morgan investment bank since 1994. development or free trade. ‘An It tracks the difference between returns on the public debt of emerging market inhabitable countries, with reference to the return The G8 meeting stated that “its leaders guarantee the will of their countries to promote and reinforce environ- for US public debt, which so far has been considered free from the risk of default. Corporate Responsibility and other forms of ment, a • EMBI Plus or EMBI+: is a variation Social Responsibility as one of four priority areas for action”, through internationally agreed social, viable of EMBI, started up in the 1990s, environmental and labor standards, as in the case of which tracks sovereign credit rating for economy foreign bonds and other new voluntary the recently approved ISO 26000 guideline or the Global Compact. and a just debt. It is composed of 109 financial instruments from 19 different countries. society are • EMBI Global: calculated since July One of the most obvious applications of geopolitics to CSR management is its usefulness when providingnot optional 1999, it is an expanded version of relevant information for world-wide business on require- EMBI+, and uses a selection process for different countries. Its liquidity trends, key players, or potential impacts which then are reflected in studies on material aspects or ments but constraints are more relaxed. It rates the relevancy, reputation risk map or stakeholder maps, essential markets of emerging countries using a combination of their ‘per capita’ earnings for example. conditions as defined by the World Bank and the Conclusions: a strategy for the earth for turning restructuring of debt for each country. Remembering the past is part of preparing for the • Other rating agencies: Moody’s, Standard future, because history always repeats itself. In a company Poor’s (SP) and Fitch IBCA. order to operate in a globalised world one should into a be familiar with the history, social, political, cultural, and economic context of a country or financially Management for sustainable business region, as well as knowing about the value source sustainable of one’s own business and where these two concerns converge, how the firm’s interests accord with those business of worldwide society and the changing situation in project’. Sovereign which they find themselves. reports Travel An inhabitable environment, a viable economy Proprietary Models Proprietary Models External transfer Sovereign spread and a just society are not optional requirements but Internal transfer Credit curves essential conditions for turning a company into a Portfolio financially sustainable business project. To see the Construction future is to anticipate events, in order to avoid Break even Corporate reports failure or rejection in one’s business activity and to analysis Relative value produce a successful organization. Security models Yield curve analysis Fuente: Pyramis Global Advisors, 2011. Insights 3
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