The financial crisis of 2008-2010 highlights the need ?for self-regulation in the Gulf
Given that 2012 has been a tumultuous year economically, following on from 12 months of political upheaval in the Middle East and North Africa, it is no surprise that a new form of accreditation being issued by the Dubai Chamber of Commerce has not attracted much attention.
Since December 2011, the chamber has been issuing businesses working in the emirate with its own corporate and social responsibility awards. The first recipients were telecoms operator Du, home services company QBG Services, and the self-explanatory Nail Spa, all Dubai firms. More recently, Canon Middle East, the regional subsidiary of the Japanese camera maker, was awarded with CSR status.
Although it may not be the most exciting topic in the world, CSR is an increasingly important part of major multinational companies’ branding and one which, in the wake of the financial crisis of 2008-2010 and more recently the London Interbank Offered Rate (Libor) scandal in the UK, is also becoming a bigger talking point among consumers.
At heart, says an executive with experience at a major UK financial institution, CSR comes down to four kinds of responsibility. First is the responsibility to shareholders and owners to run the company so that it is as profitable as possible. Second comes the need to work within the legal framework of the country, or countries, a firm works in. Both of these responsibilities are requirements for big, modern firms. If you don’t make money, or you break the law, then you are in trouble.
Less tangible are a company’s other responsibilities – to society. The first, he says, is the requirement to act ethically, which is often quite different to operating within the bounds of the law. Then there is charity – giving to society without asking for anything back, for reasons ranging from moral convictions to motivating customers by way of good marketing. More recently, he adds, being a good corporate citizen has also come to incorporate notions of sustainability, from green initiatives to working in education with local communities.
“The problem is,” he says, “that quite often these things can come into conflict with one another. But now, companies are becoming aware that there has to be more of a balance, that the perceptions of customof a balance, that the perceptions of customers and the wider public are sometimes just as important as creating shareholder value. And by looking at sustainability, you can save yourself a lot of money.”
The ideas behind CSR are taking a while to catch on in the Gulf. In a 2012 survey for the Dubai Chamber of Commerce’s Centre for Responsible Business, only 44 per cent of companies polled said that CSR was of any importance to the company while only 8.5 per cent had solid policies in place, mainly because of a lack of awareness of the ideas and drivers behind CSR.
“These figures show that we have made in-roads in increasing awareness, but that there is still a long way to go before CSR and sustainability are fully incorporated by the business community,” says Beliad Rettab, senior director of economic research and sustainable business development at the chamber.
An executive who has worked in CSR at several big companies and organisations in the Gulf says that a key issue in the past has been getting executives’ heads around the idea of a joined-up policy which looks at every aspect of the way a company is run – “its culture” – rather than simply giving to charity or working on environmental initiatives. “In 2007, people were talking about charity and zakat,” she says. “More recently, you saw environmental concerns coming into the picture, while more international companies are worried about their brand image.”
“In 2005, CSR was mainly understood as community initiatives,” says Fatih Mehmet Gul, founding director of CSR Middle East, a portal for information on CSR. “Today, we can see a wider approach in the market. That approach brings CSR initiatives for each stakeholder, such as customers, employees, environment, and so on.”
A big help in pushing the CSR agenda in the region has been pressure from foreign multinationals working in the country, says the CSR executive, pointing out that the Dubai Centre for Responsible Business –the first institution of its kind in the region – was originally set up by US pharmaceuticals company Merck & Co and the Washington-headquartered Centre for Ethical Resources in the late 1990s. At the time, the centre was described as “one of the most improbable business concepts of the decade”. It was 2005 before the centre, then known as the Dubai Centre for Ethical Resources, linked up with the Dubai chamber, which took over its operations in 2007.
“By nature it is multinationals that are leading the way in the region due to the increased awareness in the West about the importance of CSR and sustainability,” says the chamber’s Rettab.
That is not to say that there are not some stand-out regional companies. An oil and gas industry executive points to national oil giant Saudi Aramco as a company that “has its head screwed on” when it comes to governance. “They are a really well-run company and they get that to remain so they have to have this kind of stuff – good governance, community outreach, philanthropy, sponsoring education, sustainabilty – built into their DNA.”
A regional analyst says that the question of CSR is particularly interesting in the Gulf, as many companies are state-run or have large levels of state ownership. “They are private companies,” he says, “and they are run by the guys at the top of local society, but at the same time they are meant to be making money for the state, and they are state-owned, so their shareholders are also their local communities, so it doubles up. Big companies like Aramco need to work with society and show their value, but are also in a position where they can pool resources with other state-run firms, and they do”
In April, Aramco held its, and the kingdom’s, first Corporate Social Responsibility Forum in Riyadh, inviting executives from firms as disparate as Emirates National Oil Company and DP World, Vodafone Qatar and the Oman Tourism Development Company to speak.
Lists like these, Gul says, show that Dubai is seen as a regional leader in the field, benefitting from the presence of a wide range of multinationals, start-ups and businessmen interested in modern corporate practice.
Even in Dubai, though, the effects of the 2008-2010 crisis are still lingering. “It’s fair to say that the spotlight was taken off CSR and sustainability during the financial crisis as businesses focused their attention on the issues of the day,” says Rettab. “However, that is understandable and things are beginning to reverse as situations improve.”
“CSR is a fundamental part of doing business and for companies who understood this, the crisis did not change the way they run their businesses,” he adds. “Overall, the financial crisis highlighted the importance of corporate governance and accountability for businesses today and as a result the expectations of society for companies to act in an ethical way have gone up. More than ever before, the need for businesses to focus on CSR is clear and we hope that this will be taken up by companies in the region.”
Gul sees more and more companies taking an interest in CSR, and highlights are the UAE’s Abraaj Capita, Jordan’s Arab Bank, Saudi Arabian car distributor Abdul Latif Jameel Company, Oman’s Muscat Bank, Qatar’s RasGas and Kuwait’s Equate petrochemicals company for praise. Abraaj has been publishing a sustainability report since 2011 when it signed up to the UN-led Pearl Initiative on corporate governance. Abdul Latif Jameel Company has been working with young people and small businesses in Saudi Arabia since 2003 to create employment opportunities, while Muscat Bank’s Tadhamon initiative uses cash from the bank and customers to work with the local community on everything from health to housing. RasGas and Equate have both been working on local education campaigns in their respective countries.
Most Gulf firms are becoming increasingly environmentally aware, particularly given the savings they can make by becoming more efficient in their use of power and water. Rettab reckons that the Dubai chamber saved Dh 5.5 million ($1.5m) in the decade to 2001.
Gul, meanwhile, says that companies in the Gulf looking at CSR would also do well to remember their customers. “Currently, I would recommend to companies, simply to be in touch with the stakeholders,” he says.
“Most of the companies focus on general community issues, such as health and unemployment. That’s fine and very much valuable, however customers expect to have a better service.
“Investing in customer satisfaction and caring for employees are also important points to keep the business more sustainable.”
Looking ahead, Rettab and Gul expect the region’s firms to become more engaged in the topic.
“For many companies, CSR was seen as just a passing fad or a way to create publicity,” says Rettab. “However, over more recent years attitudes are changing to realise that CSR can have a significant and lasting impact on a business itself leading to money savings and increased staff morale.”