Book Review: Why We Lie About Aid by Pablo Yanguas

May 1, 2018

Mark Goldring on how to maximise the impact of business on poverty and injustice

May 1, 2018
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Guest post from Mark Goldring, Oxfam GB’s Chief Executive Mark Goldring

Last week I introduced an Oxfam event at which Paul Polman of Unilever and a number of proponents of social enterprises came together to explore what kind of new business models we need to help beat poverty for good.

My starting point was that business has played a massive part in reducing extreme poverty, certainly more than that of charities and aid donors combined, and is fundamental to finishing the job. Many business leaders and employees have shown a strong personal commitment to reducing poverty, as have investors. Larry Fink, the CEO of Blackrock, recently stated in an open letter to CEOs, “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” And when the world’s largest investor says it, even the sceptics begin to listen.

Many business leaders are genuinely interested in ensuring the benefits of wealth creation are shared more fairly.  However, even the most committed CEOs and companies face barriers and disincentives due to the prevalence of models of business and finance that put a disproportionate emphasis on maximising shareholder value. Oxfam’s recent report, Reward Work Not Wealth, describes how the substantial economic growth over recent years has disproportionality accrued to those who already have it; around 80% of new wealth has gone to the richest 1% of the world’s population. Those in lower paid and informal employment have seen little gain in income and none in wealth. Unless we reverse this, we won’t hit our SDG target of ending extreme poverty and will leave the poorest behind as parts of society get richer.

Fair Value coverOxfam’s research and experience points to the potential and need for businesses that are structured so that farmers and waged workers have a greater say in decisions, and get a more equitable share of the value created. A recent Oxfam report, Fair Value showcases examples from food supply chains of multi-national companies, as well as cooperatives and social enterprises, which address such issues as contracting arrangements and fair pricing. Looking at business arrangements through the lens of how they impact differently on women and men can help overcome gender-specific barriers to women’s economic empowerment and enable them to benefit more from markets.

Our report, and the input at the seminar from Sophi Tranchell, CEO of Divine Chocolate and Lisa Dacanay, President of the Institute for Social Entrepreneurship in Asia, as well as Paul Polman, show us such approaches are scaleable, replicable, can be extended to cover areas of the chain of production where more value is added, and that they can be linked into the supply chains of the biggest businesses.

The challenge now is for companies and their investors to more generally apply this thinking about how to respond to the needs of a wider group of stakeholders than shareholders, and for governments to consider how best to support and encourage this.

I see a range of ways, of which new business models are perhaps the least developed by big business, that will maximise the impact of business on poverty and injustice.

In brief these would include:

  • Recognise the difference between a legal minimum wage and a living wage. Work together with other likeminded businesses and governments towards this. The government in Ecuador garment industry in Cambodia and tea growers in Malawi have shown such progress is possible.
  • Look at wage differentials and extremes of pay and reward more generally. Use executive incentives to reward social and environmental performance. Challenge (often gendered) social norms that value and reward individual’s contribution to a firm’s success in a vastly different and unfair way.
  • Look beyond direct employees, right along the supply chain. The further along you go, the more exploitation aid-and-trade-logosyou will find. Build partnerships with suppliers and don’t only rely on audit.
  • Explore gender dimensions in all elements of employment. Recognise that women less often benefit from job security, training, promotion and other opportunities and more often suffer exploitation. Act accordingly.
  • Commit to tax transparency, pay tax where profits are earned. Work collaboratively with governments in law and practice. Without this, poor countries will never raise the tax they need to be less aid dependent and pay for much needed public services that disproportionally benefit the poor.
  • Actively engage with the communities affected by your operations. Recognise your impact on their lives, not just their jobs.
  • Explore new forms of corporate governance, such as stakeholder representation at board level, and engage with long-term investors on social and environmental issues to build support for investments in people and business rather than short-term cash returns. Use procurement approaches to favour suppliers who are structured to benefit wider stakeholders and parts of the community who may otherwise not benefit.

Most jobs and wealth will be created by small and medium sized national and local enterprises, but multinationals have a powerful role in setting standards, collaborating with government, innovating and leading a race to the top. Good business is fundamental to beating poverty, the better the business the faster we will crack it. And Oxfam is committed to play its part by engaging with business to explore and test ideas, challenge, cajole and collaborate to help make this happen.

Update: there’s now a podcast of Oxfam’s Erinch Sahan in conversation with  Sophi Tranchell, CEO of Divine Chocolate and Lisa Dacanay, President of the Institute for Social Entrepreneurship in Asia

 

5 comments

  1. I wanted to share a private conversation from that evening, with a prominent leader from the finance sector who said: “everyone is a shareholder, you and I are shareholders through our pension funds, why should we question the prevalence of shareholder primacy?”. This is a fantastic challenge that gets to whether one believes rewards and power should be distributed according to one’s wealth. It also gets to the heart of whether people truly think inequality is worth fighting. Here is my answer:

    Ignoring the vastly unequal ownership of shares would be the equivalent of distributing voting rights according to land ownership. Yes many people own some shares (or some land). But rewarding people in proportion to their shareholding means we reward people according to their wealth. We wouldn’t think this is optimal in designing the governance of other institutions (e.g. legislatures). But we don’t ask this question about the design of business.

    This issue is the essence of Oxfam’s 2018 Davos report titled Reward Work, Not Wealth. Distributing profits and power (ie voting rights) according to one’s shareholding says you’re only as important as your wealth. Structuring business in this way is a choice, many alternatives exist (and prosper) and developing countries in particular don’t have to follow this narrow and extreme business model of distributing power and value according to capital ownership.

    Inequality is mainly driven by skewed ownership of capital (according to World Inequality Report). If business is designed to share economic spoils in proportion to ownership of capital, then we’ve hardwired business to drive inequality. Developing countries can leapfrog over this version of business.

  2. Pension holders are not legal shareholders. They have no voice or shareholder votes. Most people are not aware of what their pension savings do. If they did and had a voice then this would significantly change how companies are run. Which members of the public would for instance vote for corporate lobbying given the chance.

    1. True, and if we had a 1 member 1 vote shareholder governance mechanism, which allowed people to participate through their pensions, we’d see society’s values reflected in business. But the current model of mainstream business wouldn’t allow 1 member 1 vote. Instead voice, power and reward would be dished out proportionately to your shareholding. That’s an underlying design feature of this outdated mainstream model of business that means it is a driver of inequality. Aid could help better models to spread, instead of exporting this one particular model of shareholder capitalism.

  3. “My starting point was that business has played a massive part in reducing extreme poverty….” Really? Don’t you think that business has and continues to play a massive part in creating poverty? What do you think causes poverty?

  4. I have great respect and admiration for Mark Goldring, whom I have known for 25 years or so, but the issue is more complex. There might have been some improvement in the standard of wages and therefore of living of Malawi tea planters, but I have a more fundamental question. It is this; should Malawi be growing more tea and coffee and tobacco at all? there is greater despair and an increasing depth of poverty in villages and probably in remote areas, and certainly on the islands in lake Malawi. It is because they are not supported by those who should to better their agriculture. Malawi offers no security of land tenure to farmers, except foreign investors and the companies that are investing in tea and coffee and tobacco and other crops for export. I accept that some of these are training the farmers in understanding the basic elements of farming. At the same time, UNICEF is buying biscuits for toddler from Nestle, and these are producing in Denmark or Switzerland. Now, Malawi has the basic commodities – groundnut, milk, flour, and could produce the biscuits to the required standard if the local producers had the right support to maintain the quality of groundnut and make sure that farmers understand the dangers of toxins if the nuts are not fully dried, if animal husbandry were more developed to enable the animals to produce more, and so on. To my mind, and I have argued this with Mark and others in the development industry, they should do more to ensure better education of farmers (particularly the more mature and older women who are the backbone of agriculture in sub-Saharan Africa, support eh wonderful initiatives of the Malawi Radio Trust which should be producing more programmes in more local vernacular languages, fight against the expropriation of good agricultural land by big wigs in Malawi and foreign interests. We are so certain of our ways that we no longer listen to the poorest. This is why, in sub-Saharan Africa there is more poverty than ever before and more people are starving than ever before. If we do not believe me, read the reports of the African Development Bank – which make for very sombre reading. .

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