tbl issue 6 good governance

8/14/2019 TBL Issue 6 Good Governance

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global briefs

report: corporate governance

csr talk

csr toolkit

survey: corporate diversity practices

crossword

musings

regulars

6people - planet - profits

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my choice: a model for a sustainable future52

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corporate governance and corporate social responsibility

examining the cracks in the ceiling

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yours humbly

notes from our founder sponsors

the crisis and causes

rules vs. relations

futuralysis: the financial crisis and csr

csr in turbulent times

strategic csr casuality

governance via internet

opinion

adult literacy

entrepreneurship

global energy outlook

in hindsight

model for urban development

features

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Editor-in-ChiefZohare Ali Shariff

Editorial DirectorKhadeeja Balkhi

Managing EditorRutaba Ahmed

Research, Distribution & DevelopmentMehfooz AleemZahra BarayAlizeh ShariqRaza Tahir

CreativesKamran RaufUmair Anwar

ReprintIn line with our mission, we encouragereproduction of material, provided tbl andcontent partners are given credit

PublisherAsiatic Public Relations Network(Private) Limited

Printed atNikmat Printers, Karachi

DisclaimerThe views expressed in tbl are theauthors and not necessarily shared bytbl and/or APR

Declaration

From the office ofDistrict Coordination Officer,City District Government KarachiNO.DCO/DDO/LAW/CDGK/109/2007,KarachiDated May 22, 2007

Subscription, advertising andfeedback at:

tbl: triple bottom-line

Address: A-7, Street 1,Bath Island, Clifton,Karachi, Pakistan.

Tel: (92-21)-5837674, 5823334Fax: (92-21)-5867103

E-mail: [email protected]: www.tbl.com.pk

Subscribe to a full year of tbl (6 issues) at the special rate of Rs.1,000 and save the cost of an issue.If you wish to subscribe to tbl, or unsubscribe, please write to us at [email protected]

the failure of good governance: how it led to the financial crisis

pak-governance: parallel tracks

corporate responsibility in the age of irresponsibility

csr now needed more than ever before

victims and winners: csr and the financial crisis

the internet: true government of the people

csr in a recession: 10 reasons to keep doing it...

pursuing a lost generation or common sense csr?

entrepreneur, anyone?

weo calls for global energy revolution despite economic crisis

bulls-eye? revisiting 07s forecast for 08

the desire to not stagnate

tbl nov-dec 08 1

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This publication is sent complimentary to decision-makers and opinion-formers in the corporate sector, the government, NGO sector,international institutions and academia, and has an estimated readership of 5,000 plus people. Recognising that your sphere of workhas the potential to compliment and reinforce the essence of our mission, we have taken the liberty to present tbl to you. It is alsoavailable at selected outlets.

We would love to hear from you. Please do contact us at [email protected] with your thoughts, feedback and input from yourcorporate or social practices.

tbl strongly believes in knowledge dissemination and sharing. Please feel free to share tbl contents with your peers and teams -of course we know youll give tbl the credit when you share our work.

We at tbl have devel-oped a new respectfor the management

of daily newspapers. Here weare, bringing out the sixth andlast issue of our publication forthis year and we know whattrials and tribulations we hadto go through for each issue,making it all happen. And this,

mind you, for a bi-monthly publication. So newspaperswho manage to churn out 24 or more page editionsevery single day have our admiration. Quite achallenge even if we take into consideration the huge

number of people who may be involved in the process.

tbl has proved to be a unique publication in manyways. To start with, it is the first, and to our knowledgethe only specialized journal in Pakistan on the subjectof CSR. Then, all writing in tbl is original content,especially written for tbl. From time to time we havealso re-printed previously published content from othersources, but every time permission has been soughtfrom the source and their support acknowledged.Third, tbl is sent complimentary to a thoughtfullycompiled list of recipients and the approximately fivethousand people who read it are people who can make

a real difference, be they from the corporate sector,government, NGOs, academia, international institu-tions active in Pakistan or other groups involved in anyfacet of CSR. At the risk of sounding self-congra-tulatory, I believe tbl is, by the end of its first year inprint, well on its way to furthering the cause of CSRtangibly.

The six issues this year have examined a range of CSR-related issues and the writings have been both food forthought and a call for action. Practical tool-kits haveespoused how companies can structure and leveragetheir CSR initiatives and case studies have illustrated

corporate success stories that others can customize andreplicate. Starting next year, with the January-February2009 issue, we hope to build on the platform that hasbeen established and provide guidance especially for

companies with no CSR programme or strategy for themoment, so that the benefits of true CSR continue tospread to an ever-widening audience.

Behind the success of tbl is a team of dedicated youngpeople, from researchers to designers, to sub-editorsand still others. But I would like to take the opportu-nity of this last editor's note of the year to acknowledgethe total commitment and ardour of two ladies who aretruly the moving spirit behind this publication. RutabaAhmed, our managing editor, who is ultimatelyresponsible for putting it all together and KhadeejaBalkhi, our editorial director and a co-founder of tbl,who is to tbl what the nervous system is to the human

body.

I cannot end this note without thanking our twofounder sponsors - EBM and National Foods Ltd,whose contribution meets a fair percentage of the costof bringing out tbl. When the tbl team first finalizedthe concept for this publication, it approached variouscompanies for founder sponsor support. While severalshowed interest, they linked potential support toeditorial coverage or laid down other pre-conditions,which we politely declined, as we were quiet clear inour vision that tbl will be a fully independent andtransparent publication. Only EBM and National Foods

came forward with unconditional support and webelieve this reflects their own conviction that CSRknowledge needs to be spread as widely as possible.This is indeed a positive approach and if morecompanies extend support to tbl, or for that matter toany other awareness building initiative, then we canlook forward to CSR becoming an integral part of cor-porate life in our country across the board.

Sincerely,

Zohare Ali ShariffEditor-in-Chief

making a difference

editors note


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letters to the editor

Your publication is a wel-

come new source of valu-able information and sub-ject knowledge. I can say withconfidence that it is possibly theonly magazine in Pakistan thatcomes up to an internationalstandard in terms of content andpresentation. One area ofimprovement that I feel youneed to work on is more handson solutions for specific problemareas in our society, speciallythose relating to conservation of

the environment.

Toufiq Pasha MoorajConsultant and ConservationActivist

Karachi

Y

our article on RainwaterHarvesting was a veryinteresting read. It is

indeed very sad how people inthe mountainous areas havebeen affected by the 2005 earth-quake and it is sadder still thatwe have not yet managed toprovide them with safe drinkingwater. I think rainwater harvest-

ing is perhaps the best way for-

ward as that part of Pakistangets the most amount of rainannually. I suggest that tblshould include a contributionssection for those of us who wishto offer monetary assistance toour brothers in the north whocontinue to suffer and aredeprived of even life's basicnecessities.

Saira KhanEntrepreneur

Lahore

There wasn't much I knewabout CSR before I startedreading tbl. The effort you

are putting in to create aware-ness about corporate socialresponsibility is truly exem-plary. Your last issue onHydroethics was a real eye

opener. It made me realize howwe take water - this scarceresource, for granted. Keep upthe good work!

Sana TaimurStudentKarachi

tbl Special Report

As we find ourselves amidst a global meltdown, this year-end edition of tbl brings to you a specialreport on Governance, CSR and the Financial Crisis, comprising a series of articles and reports writtenby eminent CSR experts and organizations from diverse parts of the world.

Following our interactions with several people including writers, CSR advocates, scholars and organi-zations in this field, we found that a consensus may be emerging on the link between CSR and theFinancial Crisis and the direction in which CSR is headed. The articles explore the global financialmeltdown in depth - what are the factors that led to the crisis, what is the role of CSR andGovernance, and what is the likely impact on CSR.

Will CSR become more of a buzzword, used by the myriad of self-serving organizations as a veil, orwill it serve as the much-needed reality check - amidst the Crisis that the world is engulfed in? In the

upcoming year, tbl will bring comprehensive coverage on Pakistan's journey towards the true light ofCSR - where we stand, how far we have come and where we are headed.

Dear readers,

Thank you for sharing yourvaluable feedback with us, asit is indeed what keeps us all

encouraged here at tbl.

Mr. Pasha, we appreciateyour compliments. In futureissues, we will publishmaterial on practicalsolutions for the environmentas well as other CSR relatedissues in our country.

Ms. Khan, thank you fortaking the time to write to us.It is encouraging to read yourthoughtful feedback and wehave noted your valuablesuggestion.

Ms. Taimur, thank you foryour compliments on tbl.Creating awareness aboutCSR is indeed our mainobjective. It is to givecorporations a platformthrough which they canbenefit and gain knowledge

about what corporatecitizenship is all about.

We look forward to our read-ers' feedback which will helpus make this platform a moreeffective source of debate andinteraction.


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Vivian LinesMember

Vivian Lines is President & ChiefOperating Officer of Hill & Knowlton'sAsia Pacific region. He joined Hill &Knowlton in 1984 and has worked withthe company in the UK, Bahrain, Dubai,Taiwan, Singapore and Hong Kong.

He has extensive experience in designing and implementingstrategic communications programmes for a broad range ofmultinational and local clients across multiple markets.

Vivian is an experienced crisis counsellor and undertakesregular crisis training and crisis assessment programmes inAsia for a range of clients. He is based in Singapore.

Abrar HasanFounder Sponsor Member

Abrar Hasan is Chief Executive ofNational Foods Limited, Pakistanspioneering multi-category foodcompany. He joined NFL as PlantDirector in 1993 and served in that

position for four years. He was elected Deputy ManagingDirector in 1997 and then Chief Executive shortly after. Priorto joining NFL, he was Plant Director at Precision RubberProducts (Pvt.) Ltd., a sister concern, from 1990 to 1993.

Abrar enjoys playing golf, squash and cricket, and is an avidreader of books on management, leadership and technology.

He holds a bachelors degree in industrial management andindustrial engineering from the Purdue University inIndiana. He is based in Karachi.

editorial advisory board

Anwar RammalChairperson

With this issue of tbl, we bring you the remaining profiles of our board members. We hope you areenjoying getting to know them as much as we are.

vision andmission

Vision: To steadily facilitate the germination of sustainable visions for organisational growth,sharing specific triple bottom-line knowledge and tools

Mission Statement: To disseminate triple bottom-line knowledge to a diversified group includingcorporate, social development and general business groups primarily through a specialised journal,expanding in accordance with organisational capacity and market readiness

Khawar Masood ButtFounder Sponsor Member

Khadeeja BalkhiExecutive Member

Ayesha Tammy HaqMember

With degrees in law (London School ofEconomics, University of Kent andGray's Inn, UK), Tammy is a Barrister-at-Law and, more recently, a media person-ality. She has practiced law in the UK,Pakistan, the Philippines and the USA

and has worked on several international projects. Her area ofexpertise is project development and finance.

In addition, she hosts a current affairs talk show on satellitetelevision, writes opinion pieces for several newspapers andpublications and hosts a radio show on one of Pakistan's FMradio stations. She currently also sits on numerous otherboards, committees, task forces and was a member ofPakistan's 5 Year Plan working group in 2004. A civil rightsactivist, she is involved with human rights and other rightsbased organizations in Pakistan.

Habiba HamidMember

Habiba Hamid currently works for theDubai Government. In 2007 she workedin Baghdad's Redzone for a USAID-OFDA and UN implementing partneron emergency response and economicdevelopment throughout much of Iraq.

She has worked in various capacities for local and nationalgovernment and several lobbying groups in the UK. She alsoserved in an elected capacity in organisations which con-tribute to educational development in the UK.

Habiba holds an M.Sc in Globalization & Development(SAS/SOAS, University of London) and a B.A. (Hons) inPolitics, Philosophy and History (Birkbeck, University ofLondon).


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National Foods Limited (NFL) has been

associated with tbl as a Founder Sponsorbefore its first issue was published inJanuary 2008. We have enjoyed witnessing itsgrowth since.

Regrettably, the scope of Corporate SocialResponsibility (CSR) which tbl strives to espouse isstill largely an alien concept for a lot of corpo-rations in Pakistan. The capacity building conceptthat CSR is essentially about is regularly missedaltogether and CSR is most often equated withimage-building, philanthropic activities and corpo-rate tax write-offs. At the same time, it can be saidthat the level of interest of the larger corporate sec-

tor in CSR is rapidly rising. From this perspective,tbl is quite timely.

'Responsibility to society' is a misnomer. It isessential that the corporate sector recognizes thatthe responsibility element of a CSR strategy shouldprincipally be related to the stakeholders in realterms - by promoting sustainable enterprisebetween the corporation and stakeholders, thuscompleting the real meaning of the triple bottom-line: people, planet and profits.

For awareness in the right sense to be created, it is

important to treat the achievement of tbl as a goal.Its accomplishment should be targeted in phaseswhich can, for example, include:a) Knowledge and awareness-building through

workshops and otherwise.

b) Correct concept definition, with real lifeexamples.

c) Creation of sustainable enterprise equationsand, again, real life examples of measurableachievements by companies.

d) Enforcement of the triple bottom line approach

at the SECP and corporate governance levels.

e) Corporations to be held accountable forexploitation of stakeholders through somemeans of regulatory controls.

It is a pleasure for National Foods to support thisinitiative and we shall continue to do so, enablingthe tbl team to use the tbl platform to undertake abroader range of activities that support itsmission.

Abrar Hasan

Chief Executive,National Foods Limited

There can be little doubt that in the global

socio-economic setup today, it is the firmresponsibility of ethical companies to play akey role in enhancing and shaping the economic andsocial progress of the countries they are operatingin. It must be understood that above all this makesgood business sense, as the sustainable developmentof a company's business is today inextricably linkedto the sustainable growth of society itself. And thiscan only be done by inculcating and practising corevalues and best practices that contribute to theprosperity of companies and hence positivelyimpact the growth of a country.

Just as globalization is today a reality, whether you

are a proponent or an opponent of it, so is the needto incorporate sustainable business practices.

In times to come only the best will survive, whetherit is in the manufacturing or the services sector.The best will be those who strategically pursue thetriple bottom line approach to business - that is abusiness growth model based on the welfare andgrowth of society at large (people), the preservationof the environment and precious natural resources(planet) and the pursuit of profitability (profits) inan ethical way.

It is to be noted also that pursuing the triple bottom-line by yourself in an isolated bubble is highlyundesirable. The message needs to be spreadwidely, for knowledge shared results in benefitsspreading even more widely. In this regard we werevery pleased earlier this year to become one of thefounder sponsors of this publication, as tbl is indeedthe vehicle for knowledge dissemination that meetsour own vision and values. Now several issues later,I am pleased to note that tbl is positively facilitatinga sustainability-entrenched culture in the country.

tbl is serving its Mission well and I believe that it isa catalyst which will make a tangible difference in

the times to come.

The standard of tbl and its content is impressiveand at par with that of well reputed internationalpublications. It is a unique source of informationand guidance for decision-makers and opinion-formers across different sectors and not just thecorporate sector. EBM is proud to be associated withtbl and I take this opportunity to wish the entire tblteam the very best in its future endeavours.

Khawar Masood Butt

Chairman and MD,English Biscuit Manufacturers

notes from our founder sponsors

tbl nov-dec 08 5


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global briefs

Barometer Launched toMeasure CSR DisclosureThe recently launched 'CSR AsiaBusiness Barometer 2008' by CSRAsia, compares the CorporateSocial Responsibility (CSR)disclosure of the 20 largest listedcompanies in Hong Kong,Malaysia, Singapore andThailand. More companies areseeing the value of makingcommitments to responsiblebusiness practices and disclosingtheir practices.

Some of the findings include:Company (codes and policies)are the most reported CSRissue (scoring 59 percent),compared with workplaceand people scoring only 19

percent. This seems to imply acontinued lack of trans-parency on Asia's thorniestCSR issue, namely labourconditions.

The companies' overall scoreremains low (30 percent), butthere is some national varia-tion, with Hong Kong scoringbest (42 percent), as comparedwith Malaysia (29 percent),Thailand (25 percent) andSingapore (24 percent).

The top companies - ChinaLight and Power and HSBC,both listed in Hong Kong -scored 93 percent, as com-pared with the poorest per-former - Hong Kong Land -scoring only 3 percent. Thetop company in Malaysia wasBAT (British AmericanTobacco) Malaysia; in

Thailand, it was SiamCement, and in Singapore,City Developments.

Publicly available reports basedon a robust data collection andreporting framework can be anexcellent communication tool toinform stakeholders of CSRstrategy, approach and

performance.

Annual Summit Highlights KeyCSR Issues in AsiaThe annual CSR summit,organized by CSR Asia, was heldin November, at the AsianInstitute of Technology, Thailand.Amidst a growing call forcompanies to engage with CSR

initiatives in Asia, the event waspoised to explore hot topicsunique to the Asian context,which would bring new insightsfor businesses, governments,NGOs and other CSRpractitioners.

The rise of CSR up the agenda inAsia was reflected in theSummit's attendance. There wereover 300 participants this year.CSR Asia itself reflected this

growing interest in CSR, with 25staff in offices in Hong Kong,Singapore, Shenzhen, Beijing,Kuala Lumpur, Dhaka and HoChi Minh City. The eventattracted a diverse group oforganizational representatives -not only corporate CSR types, likethe head of water for Coca-Colaand supply chain for Hewlett-Packard - but also NGOs andconsultants focusing on

corruption, HIV/AIDS, climatechange and labour justice, tomention a few.

Until fairly recently, CSR in Asiawas largely equated with philan-thropy and supply chain issues,specifically labour conditions.Now, there is a marked shift toenvironmental issues, specificallywater, but also deforestation andclimate change, as well as productresponsibility. The relationship

between the financial crisis andCSR has already emerged as a hottopic, with Mr. Kasit Piromya,

Director of International of theDemocratic Party in Thailand,stating that governments willhave to tackle the systemic greedof the financial markets and over-paid CEOs if CSR is to be at all

effective in future.

Non-executive's Role inCorporate Governance MoreCrucial than EverIndependent non-executive direc-tors should help drive corporateresponsibility - but how?

Non-executive directors play avital role in shaping the strategyand governance of UK companies.Independence from managementshould allow them to take abroad, long-term view of strategy,and gives legitimacy to their rolein scrutinising management plans.

Corporate responsibility hasbecome a board-level concern forUK non-execs only recently, saysCraig Mackenzie, senior lecturerin sustainable enterprise at the

University of Edinburgh. "In thelast five years it's become muchmore formally significant for non-execs of big companies," he says.

UK corporate governance guide-lines require London-listed firmsto report on their performanceagainst business ethics and corpo-rate responsibility standards - orexplain why they do not. Boardsare free to decide how they willmanage and oversee corporateresponsibility concerns, and whatrole non-execs play in the process.

The breadth of experience non-execs bring can be valuable inpursuing ethical business agen-das, particularly in cross-fertilis-ing best practice between sectorsand bringing expertise andinsight from other walks of life,head of corporate governance atthe UK's Institute of Directors

Roger Barker says. He adds thatthe increasing involvement of bili-non-execs in corporate responsity

PE

OPLE

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is part of a general trend since thegovernment-commissioned reportby the late Sir Derek Higgs of2003, which recommendedexpanding the non-exec directorrole to improve corporate gover-

nance.

Citing the complex financial prod-ucts in the banking sector, Barkersuggests a lack of in-depth opera-tional knowledge may inhibit anon-exec's ability to ensure ethicalstandards effectively. The ethicalscrutiny role can create moraldilemmas for non-execs whenthere is a conflict between short-term profits and doing the rightthing.

Some may say grappling withthat moral dilemma is what beinga company director, executive ornon-exec, is all about. Thereseems little doubt that in the cur-rent economic climate, the judg-ment calls are only likely tobecome more frequent and diffi-cult. Because it is non-exec direc-tors who, more than any otherboard members, are charged with

taking the longer-term view, theirrole is arguably now more crucialthan ever.

Organic Food and FarmingConferenceA Conference on "ManagingCompeting Values in OrganicFood & Farming" was held inNovember 2008 in Bristol. The

Conference focused on two keysubjects including: How canorganic farming contributetowards the development of sus-tainable communities in ruralareas' and How do farmers andother actors in the organic foodchain define and work towardsthe protection of non-market val-ues - and what works againstthem?.

In this conference, eminent

researchers and professors high-lighted issues such as

Organic farming and its

impact on the community

Local or global sourcing

Fairtrade

The role of supermarkets

UK and internationalperspectives

This Conference was part of asequence of five interactive,participatory one-day workshopsto be held over the next twelvemonths. The workshops will focuson the key areas of food produc-tion, supply and retailing.

Attendees from all areas of foodproduction, distribution andretailing as well as regulatorybodies and research willcontribute and share theirexperiences, views and beliefs.

New Architecture and UrbanPhenomena'Balkanology, New Architectureand Urban Phenomena in SouthEastern Europe', an ongoing exhi-

bition at the Swiss ArchitectureMuseum, in South EasternEurope, explores contemporaryarchitecture and urban designfrom a trans-disciplinary perspec-tive, not just at national level asits title might suggest, it also putsarchitecture into a global context.

Balkans generally refers to SouthEastern Europe, a region withvarying geographical definitions.Going beyond clichs and thepathos, the Balkanology exhibi-tion focuses on the impact ofrecent socio-political changes onarchitecture and urban planning,drawing a variegated picture ofurban development in the regionand the forces that determine it.

Curated by Kai Vckler, the exhi-bitions focuses on two mainthemes:

The way inhabitants solved

the lack of housing and initi-ated construction projects ontheir own account.

A comparison between out-standing yet hardly knownbuildings of socialist mod-ernism in Yugoslavia withcontemporary architecture.

Since the collapse of the socialisteconomic system in ex-Yugoslaviaand Albania and the war that leadto the split of Yugoslavia, a newform of urbanization typified byextensive informal building activi-ty has appeared on the territory.Inhabitants have taken the issueof housing shortage in their ownhands, and they have startedbuilding new dwellings fromscratch and adapting existingedifice for their own purposes.

In this context, the termBalkanization takes a radicallydifferent meaning: it stands forthe improvisation and adaptationskills of architecture. Some of themany questions the exhibitionaims to raise include: how can acombination of governmental andsocial control offer the best possi-ble basis for a successful retro-active 'post-regulation?

These unregulated forms of urbandevelopments have oftenbypassed the expertise of archi-tects. This makeshift architecturehas nevertheless developed itsown style and culture character-ized by a new intermeshing ofspaces through visual worldscommunicated by the media,migratory movements and cashflows.

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Shared by Ethical Corporation, an independent media

firm


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Eco Redesigning forDevastated CommunitiesSustainability incorporates lessonsleaned from history in order toimprove on design to avoid fatalflaws and in this case, to prolongthe lifespan of a structure as itrelates to its surroundings.

The brand new, modern, ecohomes being erected at a rapidpace are redefining the 9th Wardand are being built for the origi-nal home owners who were dis-placed by Hurricane Katrina. Thefocus of this project is on theimpressive and innovative greenaspects of the project itself andhow it serves as a model forbuilding a new neighbourhoodfrom the ground up in a sustain-able way. The new home designs

are by a combination of local,national, and international archi-tects.

Even though the new homes inthe 9th Ward include solar panels,energy efficient everything, andother elements that we think ofwhen we think of sustainability,perhaps the single most importantfeature of these homes are theirstilts. If the ocean should ever

intrude again, these new homescould be high enough off theground to clear the floodwaters, asimple solution to end the debateabout whether or not to rebuildthe 9th Ward at all.

To date, the 84th house, out of150, has been paid for throughsponsorships and donations.

Guerrilla vs. GorillaDue to escalating violence,Congolese rangers have been run

out of the country's VirungaNational Park, threatening thesafety of some 200 mountaingorillas that live there. "There aredocumented cases of the gorillasgetting caught in the crossfire and

getting killed," says a parkspokesperson. "It's the chaos ofwar and they are right in the mid-dle of it." Only about 700 moun-tain gorillas remain in the wild.

The three African nations that stillhave mountain gorilla popula-tions have agreed to cooperate ona new plan to save the criticallyendangered primates. Rwanda,Uganda, and the DemocraticRepublic of the Congo hatched a

10-year programme to enhancesecurity in the parks and foreststhat the gorillas call home, as wellas other measures. The countrieshave also agreed to programmesaimed at mitigating the harshpoverty in communities sur-rounding gorilla habitat, whichoften leads locals to poachwildlife and clear more land. "Forthe first time, the three countrieshave decided to protect the great

apes which are threatened withextinction and insecurity in theregion," said Moses Mapesa of theUganda Wildlife Authority. Themultination plan is largely seen asan important step, but plenty ofchallenges remain. Notably,armed militants still control alarge part of the DRC's VirungaNational Park where over half ofthe world's remaining 720 moun-tain gorillas live.

World's First InternationalRenewable Energy AgencyA consortium of European gov-ernments is developing theworld's first InternationalRenewable Energy Agency.

The agency, known as IRENA,will serve as a global cheerleader

for clean energy. It plans to offertechnical, financial, and policyadvice for governments world-

wide, according to a jointannouncement from Germany,Spain, and Denmark - the pro-

ject's leaders.

Renewable energy is on the rise

worldwide as governmentsattempt to reduce greenhouse gasemissions and create domesticenergy sources. Despite a varietyof international organizations thatare helping with the clean energytransition, IRENA's leaders saidthat no single agency addressesthe local, national, and interna-tional needs of both developedand developing nations.

The international organizations

that currently focus on renewableenergy include the InternationalEnergy Agency (IEA), WorldBank, Renewable Energy PolicyNetwork for the 21st Century(REN21), Renewable Energy andEnergy Efficient Partnership(REEEP), and several UnitedNations agencies.

In the past year, global renewableenergy sources have increased

dramatically. More than 250gigawatts of capacity, excludinglarge hydropower, exists globally.Clean energy investmentssurpassed $148 billion in 2007, a60 percent increase from 2006,according to the U.N.Environment Programme.

Several countries in charge of theIRENA initiative, includingGermany and Denmark, are hometo some of the world's leadingproducers of renewable energytechnologies.

At a conference in Madrid lastmonth, IRENA's 51 participatingnations agreed that the agency'sfirst projects would be presentedin January 2009. The involvednations currently include nearlyall of Europe as well as Australia,Argentina, Brazil, India,Indonesia, and the United Arab

Emirates.

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to driving sustainability mainstream

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ANET

Shared by Worldchanging, a nonprofit media

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tbl nov-dec 08 9

Rice Husks GeneratingElectricity in India's VillagesThere are 350 million people inIndia without power living insmall villages; and those commu-nities harvest 92 million tons of

rice harvested every year. In atypical village, about 1500 tons ofrice is harvested every season,yielding 500 tons of husk and1000 tons of edible product, statesRobert S. Katz, a Knowledge &Communications Associate atAcumen Fund. The farmers eitherburn the husk or allow it to rot inthe fields. Rice husk is the outsideof a rice kernel. Rice husk is cellu-losic, which means it can be heat-ed up and released for energy -

the gas released is similar tomethane. It also contains silica,which is released as a waste prod-uct when burned.

A rural electrification company,Husk Power Systems (HPS) isusing husk to make electricity.The gas that is made out of thehusk is filtered, and then runthrough a diesel-like engine togenerate power. HPS is operating

in 5 villages, and currently pow-ers 12,000 people's homes. HPSutilizes a proprietary technologyto run 35-100 kilowatt mini powerplants, delivering pay-for-useelectricity to un-electrified vil-lages in India's "Rice Belt."

The co-founder of HPS, ChipRansler says, "We're using anolder technology - gasification -which has been around sinceWorld War II. We retrofit

machines to work with multipletypes of raw material - not justrice husk, but corn husk andwheat husk, too. We work withtwo Indian manufacturers tobuild gasifiers with the right spec-ifications."

According to Ransler, in the next5 - 10 years: "We think we canpower 2500 villages - 750,000 peo-ple." To date, five pilot projects

have become operationally prof-itable within six months, deliver-ing sustainable, environmentally-

friendly, low-cost energy that isdramatically improving the livesof over 12,000 rural Indians.

Innovative and SustainableDesign Structure

The recently built Women'sHealthcare Centre in BurkinaFaso is truly an innovative struc-ture, driven by the ideas of sus-tainability and ethical awareness.It has been built by FARE Studio,a design production facility basedin Rome and also won the HealthCategory Award at the WorldArchitecture Festival.

It mixes local materials, simpletechnologies, careful siting and

control of sun and wind to buildan off-grid, solar powered facility.The entire complex is built on araised platform to allow ventila-tion under and to separate it fromthe dust and mud. Then thebuildings are constructed from asun-dried brick cast on site. Thebricks don't do well in contactwith a lot of water, so they sit onthe raised plane for protectionfrom below, while above, a sun

and water screen protects thebuildings.

Breezes can flow below the floorand below the roof, keeping thebuildings cooler without mechani-cal ventilation. The roof also gath-ers rainwater. The buildings areplastered and painted, with slo-gans in five languages as a graph-ic element.

The Women's Health Care Centre

was built with local trades in fif-teen months.

New Tsunami Warning SystemLaunchedIndonesia launched a sophisticat-ed new tsunami warning systemdesigned to give coastal residentsenough time to flee or seek shelterfrom an impending tidal wave.

The national system aims to pro-tect the inhabitants of the archi-pelago's vast coast and prevent a

deadly repeat of the 2004 IndianOcean tsunami that killed 168,000people in Indonesia alone.

But even as President SusiloBambang Yudhoyono inaugurat-

ed the system in Jakarta, officialsconceded it would be severalyears yet before it is fully com-plete and the whole coastline pro-tected.

According to Thomas Rachel,Germany's parliamentary statesecretary, in Jakarta: "We arestarting the world's mostadvanced tsunami early warningsystem able to issue the quickestpossible warnings with a high

degree of reliability."

Indonesia, with its 17,000 islands,remains especially vulnerablebecause it sits on the meetingpoint of three of the earth's tec-tonic plates, leaving 60 percent ofthe coastline at risk fromtsunamis.

The new high-speed warning sys-tem connects a series of seabed

sensors that detect the earth-quakes that may set of a tsunami,information that is relayed tobuoys on the surface. Deep-seapressure gauges monitor any sud-den variations indicating that atsunami is in motion, data that isenhanced by the notion of the sur-face buoys that carry global posi-tioning systems.

All the information is relayed bysatellite to the tsunami early

warning centre in Jakarta, whichis connected to 11 regional hubsacross Indonesia.

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10 www.tbl.com.pk

Sustainability can EnhanceCompetitiveness: ReportIn the current economic crisis, theability of companies and countriesto be competitive has never beenmore important. Sustainabilitycan enhance that competitiveness,according to a news briefing pub-lished today by the Institute ofChartered Accountants inEngland and Wales (ICAEW).'Competitiveness andSustainability: building the bestfuture for your business' has beenwritten by leading sustainabledevelopment charity Forum forthe Future.

The report is the first publicationin a new series, which forms partof the ICAEW's broader thought

leadership programme "Sustain-able Business". The series aims tooffer a platform for corporateresponsibility and sustainabilityexperts to express their views onissues which will be of interest tothe business community.

The paper outlines three deter-mining factors which companieswill need to address:

Industries at the start of sup-ply chains will have to paymore to harvest, extract andget access to many primaryproducts.

As ecosystem servicesdecline, the framework condi-tions within which businessesoperate, will change.

New business opportunitieswill emerge. Demand willgrow for more efficient ways

to use eco-system services formeeting needs or mitigatingimpacts.

According to David Bent, Head ofBusiness Strategies at Forum forthe Future and Vice Chairman ofthe ICAEW's CorporateResponsibility Committee andauthor of this report, "The reces-

sion is a perfect storm warning ofhow sustainability issues are driv-ing the context in which business-es compete. High prices for ener-gy, food and commodities plusunsustainable levels of debt arethe long-term drivers of unsus-tainable development. When welook at future trends it is plainthat the questions of sustainabilityare a fundamental part the com-petitiveness of any company orcountry."

Auction of Carbon Permits inUKThe E.U.'s first carbon-permit auc-tion was held in November 2008,raising some $80 million, as bid-ders fought for the right to emitgreenhouse gases. Previously, allof the emissions permits allocated

to UK businesses under theEuropean Union's trading schemewere given out free. According tothe Financial Times, "the govern-ment has pledged to auctionanother 80m permits in the nextfour years, which is likely to bringin revenues of more than 1bn."The identities of bidders has notbeen disclosed, but electricity pro-ducers are expected to be themain buyers as they had their freeallocation of permits cut by 30percent.

The government considers theauctions as a model which ithopes would be followed by otherEuropean countries. According toAngela Eagle, exchequer secretaryto the Treasury, "This is the mosteconomic, efficient and effectiveway of [making companies payfor their emissions]."

"The free allocation of permits inthe first phase of the scheme,from 2005 to 2008, enabled power

companies in the UK and othercountries to make windfall profitsby raising electricity prices tocover the notional cost of havingto buy permits, despite receivingthem free," reports the Financial

Times. The government said thatthe auctions should not result infurther electricity price increases,as the cost of permits had alreadybeen factored in.

The UK is pushing for power gen-erators to have to pay for all oftheir carbon permits in the thirdphase of the EU scheme, from2013, arguing that electricity pro-ducers tend to be well-insulatedfrom international competition.

A late amendment to the climatechange bill is expected to receiveroyal assent by the end of thisyear. This initiative will make iteasier to obtain subsidies forsmall-scale renewable energyprojects. Any project producingup to 5MW of electricity - equiva-lent to about three to four windturbines - will qualify for a "feed-in tariff" rather than the current

subsidy system. Under such tar-iffs, generators are guaranteed ahigher price than normal for theirelectricity for several years.

Greening the Supply Chain inEmerging MarketsA Report by the WorldEnvironment Center, titled"Greening the Supply Chain inEmerging Markets: Some Lessons

from the Field." looks at success-ful strategies for improving theperformance of supply chainsthroughout the developing world.The report is second in the newGreenBiz Reports series bythought leaders in the green busi-ness arena. It examines the defini-tion and scope of "Greening theSupply Chain" initiatives, discuss-es the value they contribute tobusiness, identifies selected keyfactors to success, presents an

approach for managing successfulGSC projects and reviews whatremains to be done through busi-

PR

OFITS

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ness management, governmentpolicy making and financial man-agement partnerships.

Greening the Supply Chain initia-tives are part of a process for

implementing a sustainabledevelopment plan forcorporate business strategy aimedat achieving improved environ-mental, health and safety per-formance; increasing efficienciesin the use of energy, water orother natural resources or rawmaterials; reducing the environ-mental and societal impact ofbusiness operations upon localcommunities and the globalbiosphere; and expanding eco-

nomic and quality of life enhanc-ing opportunities that result fromthe company's business activities.

One of the lesser understood fac-tors in the governance of globalcompanies, especially withrespect to management of theirsupply chains, is the limitednumber of their own employeesthat are located on-the-ground indeveloping market nations.

Greening the Supply Chain (GSC)initiatives have emerged as onemeans to compensate for thislimitation; they also aim to assistcompanies to achieve greatereconomic efficiencies and align-ment of sustainability objectivesacross their operations whileworking with hundreds and, attimes, thousands of independentsupplier firms with differingobjectives and capabilities.

Cleantech Investments andEconomic StimulationThe short-term blowback from theglobal financial panic has beenpretty logical: A flight to valueand safety and reallocation ofassets to deal with longer-termrisks of the new economy. Sowhat does this mean for cleantechinvesting?

While it is true that the short-term

panic means an interim dry-up offinancing, the same can be saidfor nearly all venture capital,

private equity, and even publicequity. But the fear that cleantechprojects may take a back seat toeconomic recovery efforts ignoresthe fact that cleantech is still beingembraced by many forward-

thinking U.S. companies andinvestors - and may just be thedriving force behind economicstimulation.

Bill Gates is one of the $100million in investors for algae-based fuel technology companySapphire Energy. T. BoonePickens has over one million sig-natures on his Pickens Plan peti-tion, and is investing $10 billionto build the country's largestwind farm. Even Warren Buffet isseeing long-term value in GeneralElectric by investing $3 billion inthe world's leading manufacturerof wind turbines, energy-efficienthybrid locomotive engines andother eco-friendly products. Thebottom line is that these investorsare not philanthropists; they rec-ognize these as money-makingopportunities in the long term.

Clean energy is also an excellenthedge against long-term down-side risk. Despite extreme turbu-lence in the short-term, carbonemission limits, public sentimentand climate change itself repre-sent significant financial risk toevery company's bottom line. Therisk of increased regulation,combined with volatile energyprices for oil and other fossilfuels, all favour clean energy in

the future - and in some cases,already do.

According to Mark Fulton, globalchief of climate change invest-ment research at Deutsche AssetManagement: "The current crisisis making the necessity of tacklingclimate change an opportunity tostimulate growth through invest-ment opportunities. Encouraginginvestment in renewable energy isa key focus. Energy efficiency

technologies are obviously highlydesirable in economies facingrecession. Infrastructure stimulus

can be tied directly to climate-sensitive sectors such as powergrids, water, buildings and publictransport which present a vastfield for the creation of newtechnologies and jobs."

How to Create Green Jobs anda Low-Carbon EconomyA report "Green Recovery" byeconomists at the University ofMassachusetts Political EconomyResearch Institute was released inOctober, by the Center forAmerican Progress (CAP).

The report shows that a $100billion green economic investment

could create 2 million US jobs intwo years - not to mention thewonders it would do for breakingour dangerous fossil fuel addic-tion and cleaning up the climate.

A groovy new map on the CAPwebsite illustrates how allocationsto 34 states from this "greenrecovery programme" wouldtranslate to net job creation andthe dent this would make on each

state's unemployment rate.

The CAP programme proposes toboost public investment (andleverage private capital throughloan guarantees) in six energyefficiency and renewable energystrategies: retrofitting buildings toimprove energy efficiency;expanding mass transit andfreight rail; constructing "smart"electrical grid transmission sys-tems; wind power; solar power;

and next-generation biofuels.

tbl nov-dec 08 11

Compiled by Rutaba Ahmed

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12 www.tbl.com.pk

the crisis and causes

The concept of good governance has typically been used in developmenteconomics as a way to describe the system of aid-recipient countries - developing

economies. The recent economic crisis has brought this concept into light in

developed economies where governance, both public and private, has beenassumed to be sound. Euphemistically put, the unfolding of recent events hasproven that this is not always true.

the failure of good governance:

how it led to thefinancial crisisreport by jia en teofor tbl


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Governments create the conditions for the function-ing of markets, operation of private firms, strengthof civil society, and welfare of communities andindividuals. (Or at least that's what they're supposedto do.) Systems of governance affect the perform-ance of the state in executing its core functions and

through this, the performance of countries in meet-ing their major economic and social goals. In the pri-vate sector, the same concept applies - firms' leader-ship enables the functioning of various departmentsand is responsible for the welfare of the firm'semployees. A firm's leadership also largely deter-mines the firm's performance and its ability to meetits goals.

In recent months, developed economies around theworld experienced an unprecedented shock - creditmarkets froze up, equity markets tumbled to recordlows and major banks failed and whole countries

were on the brink of default. While the crisis cannotbe blamed on one single entity because it cameabout as a result of greed and complacency of con-sumers, investors and businesses alike, it is widelyargued that the lack of good governance at the pub-lic and private levels led to this meltdown.

PUMA's Six Pillars of GovernanceGood governance, in the private and public sphere,is the ability to exercise power, and to make gooddecisions over time, across a spectrum of economic,social, environmental and other areas. There are

many ways to define good governance, however,there seems to be a general consensus that key fac-tors, as outlined by the OECD programme on PublicManagement and Governance (PUMA) include:1) Technical and managerial competence2) Organizational capacity3) Reliability4) Accountability5) Transparency and open information systems6) Participation

Technical and Managerial Competence

Under Question in The Wake of CrisisTechnical and managerial competence of leadershipis an obvious factor of good governance. In thisfinancial crisis, it is hard not to question the compe-tence of the regulatory bodies responsible for over-seeing the financial institutions, and the competenceof the financial institutions themselves. It becameobvious that neither public sector leadership nor pri-vate sector leadership really understood the complexfinancial instruments that were structured, packagedand sold during the boom years.

Rewind to April 2004. Only after the crisis hadbegun unfolding did the New York Times publishan account of the brief meeting between Security

and Exchange Commission (SEC) officials and theheads of the large investment banks. The investmentbanks wanted the SEC to exempt their brokerageunits from an old regulation that limited the amountof debt they could take on. The exemption wouldfree up billions of dollars held in reserve as a cush-

ion against losses on their investments. Those fundscould then flow up to the parent company, enablingit to invest in the fast-growing but opaque world ofmortgage-backed securities, credit derivatives, andother exotic instruments. This meeting was sparselyattended and went unreported in the media. It last-ed a total of 55 minutes, states The NY Times.

In loosening the capital rules, which are supposed toprovide a buffer in turbulent times, the SEC alsodecided to rely on these investment banks' own riskmodels, essentially allowing them to monitor andregulate themselves. The 2004 decision was a chance

for the SEC to supervise the banks' increasinglyrisky investments in mortgage-related securities, butthe agency never followed through on this and itremained a low priority, until now.

Inadequate Organizational Capacity:Failure ofthe Fed?Another factor of good governance is organizationalcapacity. Good governance has to be built on thequality of organizations so that development isbased on this rather than simply relying only on thepolitical or personal will of a strong leader, which

may not be sustainable over the longer term.

Both government and private sectors firms provedto be inadequate in this regard, and a case in point isthe failure of the Federal Reserve under AlanGreenspan. The Federal Reserve under Greenspanwas operated by the will of one rather than by a sys-tem of checks and balances. Stephen Roach, ChiefEconomist at Morgan Stanley said in an interviewwith the Financial Times that the Federal Reserve,led by the "libertarian ideology" of Alan Greenspanwas "very reckless in condoning the excesses of com-plex financial information and setting the price of

risk far too low." Roach's views are echoed by manyother economists who say that Greenspan encour-aged the bubble in housing prices by keeping inter-est rates too low for too long and that he failed torein in the explosive growth of risky and oftenfraudulent mortgage lending.

The Fed chairman had been one of the nation's lead-ing voices for deregulation, and there are past state-ments in which Mr. Greenspan had argued that gov-ernment regulators were no better than markets atimposing discipline. The Fed slashed interest rates

from 2001 to mid-2004, which led to warnings of apotential bust, but Greenspan brushed these worriesaside, according to the NY Times. Greenspan, along

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with most other banking regulators in Washington,also resisted calls for tighter regulation of subprimemortgages and other high-risk exotic mortgages thatallowed people to borrow far more than they couldafford.

The Freddie Mac and Fannie Mae Case: TheCase for ReliabilityHighlightedReliability is another factor of good governance.Reliability requires governance that is free fromdistortionary incentives - through corruption,nepotism, patronage or capture by narrow privateinterest groups.

The story of Freddie Mac and Fannie Mae is a classiccase of policy capture that highlights the importanceof reliability in governance and the effects when it isabsent. The Wall Street Journal and CBS have report-ed that Freddie Mac and Fannie Mae spent millions

of dollars lobbying some influential members ofcongress, in exchange for, among others, lax capitalreserve requirements. As a result of their lobbyingprowess, these obsoleteinstitutions became virtuallyuntouchable behemoths.Congressman Ron Paul hassaid that "the special privi-leges granted to Fannie andFreddie have distorted thehousing market by allowingthem to attract capital they

could not attract under puremarket conditions."

Accountability:too little,too late?Accountability is a crucialway to ensure that thepower that is given to those in public office is usedappropriately and in accordance with public inter-est. Accountability requires clarity about who isaccountable to whom, for what, and that civilservants, organizations and politicians are heldaccountable for their decisions and performance.

Accountability is a convoluted concept with respectto this financial crisis because of the global nature ofthe financial system. Consumers are at fault forover-borrowing, banks are at fault for over-lending,investment banks are to blame for over-securitizing,and regulatory institutions are at fault for allowingthis excessive behaviour.

At some level, the leadership at the public andprivate institutions that has been involved in thiscrisis are being held accountable - top executives at

these banks are being questioned and will bemissing out on some of their bonuses; Greenspan isbeing called into question for his lax oversight of the

markets. But perhaps this call for accountability is acase of too little, too late.

Financial Crises: Due to A Breakdown ofTransparency

Transparency is another important aspect of good

governance. Governments have access to a vastamount of important information. Dissemination ofthis information through transparency and openinformation systems can provide specific informa-tion that firms and individuals need to have to beable to make good decisions.

This financial crisis was a case study of the break-down of transparency at many levels. Take forexample, AIG and its 'small' derivatives unit, headedby Joe Cassano. This unit was convenientlyclassified and located in London so to ensureparticularly lax oversight over the dubious accoun-

ting and disclosure practices evidently abetted by itschief. The insurance behemoth came to its downfallbecause its leadership had made some very risky

bets, hid them from regula-tory oversight, and movedthe risky business abroad.

Capital markets depend oninformation openness andtransparency but the natureof these complex derivativeproducts made it difficult

for most people to under-stand, much less regulate.The collapse of the giantinvestment banks and thefinancial system are due tothe lack of transparencysurrounding these products

and the loss of confidence in the counterpartiesinvolved. As a result, investors panicked, causingthe markets to tumble.

Lack of The Right Kind of ParticipationTriggeredThe Crisis

Another factor of good governance is participation.Participation involves consultation in the develop-ment of policies and decision-making, elections andother democratic processes. Participation givesgovernments access to important information aboutthe needs and priorities of individuals, communitiesand private businesses. Governments that involvethe public will be in a better position to make gooddecisions, and decisions will enjoy more supportonce taken.

Before the crisis happened, in boom times, partici-

pation was everywhere. However, it was not theright kind of participation - this was participation ina party of excess, complacency and greed, and the

14 www.tbl.com.pk

Accountability is a convolutedconcept with respect to this financialcrisis because of the global natureof the financial system. Consumers

are at fault for over-borrowing,banks are at fault for over-lending,

investment banks are to blame forover-securitizing, and regulatoryinstitutions are at fault for allowing

this excessive behaviour.


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participants were not just greedy investors, but largebanks and even regulators. As Professor atColumbia University, Joseph Stiglitz put it, "it wasall done in the name of innovation, and any regula-tory initiative was fought away with claims that itwould suppress that innovation. They were innova-

ting, all right, but not in ways that made the econo-my stronger. Some of America's best and brightestwere devoting their talents to getting aroundstandards and regulations designed to ensure theefficiency of the economy and the safety of thebanking system."

The lack of the right kind of participation - participa-tion in developing sound policy and regulation, hascontributed to the unraveling of financial systemsworldwide.

Due to poor governance, America's financial system

failed in its two crucial responsibilities: managingrisk and allocating capital. The industry as a wholehad not been doing what it should have been doingand it must now face change in its regulatory struc-tures. Regrettably, many of the worst elements of theUS financial system were exported to the rest of theworld, according to Joseph Stiglitz.

The global financial crisis, triggered by the mortgageand financial derivatives debacle in the US, was not

just a failure of dogmatic ideology, or of know-how,or of technical regulations. As illustrated at theoutset, powerful 'vested' interests, at the intersectionbetween politics and business, and corruption,played a role in shaping the flawed oversight, theabsence of transparency, the regulations, and theirlax implementation.

The Effect on PakistanIn Pakistan, people watched from afar as the capitalmarkets crashed in the US and Europe. According tosources within the banking industry, the globalfinancial crisis has not affected Pakistan yet becausethe country is not a large financial player in theglobal economy. However, the SBP's First Quarterly

Report issued last month states, "the domesticeconomy is now more open and prone to externalshocks than ever before".

Former president of the Overseas Chamber ofCommerce and Industry, Zubyr Soomro believesthat the primary impact for Pakistan would be tight-ened terms for access to international debt markets.Some analysts view this crisis in the West as achance for Pakistan to establish a stronger economicfoothold in the region. They believe that investmentwill pour into the country as returns in developedmarkets fall. According to the Head of retail banking

of the National Bank of Pakistan, Amir Siddiqui,"We need to prepare ourselves on a war footing bygetting floating barrages from the Middle East to

overcome the energy shortages and to receive a fatchunk from the investment that would be divertedto surging economies of Asia."

But Pakistan has a crisis of its own to take care of fornow. While Mr Musharraf's prime minister, Shaukat

Aziz, frequently likened Pakistan to a "tigereconomy", the former government left an economyon the brink of ruin without any durable base.

No BailThe Pakistan Rupee has lost more than 21 percent ofits value so far this year and inflation now runs at25 percent - by conservative estimates. The rise inworld prices has driven up Pakistan's food and oilbill by a third since 2007, according to Wilkinson inthe Telegraph. President Zardari told the Wall Street

Journal that Pakistan needed a bailout worth $100billion from the international community.

President Zardari is expected to ask the internationalcommunity for a rescue package at a meeting in AbuDhabi next month. This gathering will determinewhether the West is willing to bailout Pakistan.However, with developed nations vying for bailoutsof their own, it is unclear if they even have thecapacity to provide this rescue package.

Whatever the outcome, it is clear that goodgovernance is key to steering Pakistan, and the restof the world, out of a global recession. It will take

cooperation at an international level and for manygovernments to not only make the decisions that areright for their domestic situations, but also worktogether with their counterparts abroad to find asolution to mend this problem and reduce its trickledown effect on real economies.

References

http://www.nytimes.com/2008/10/03/business/03sec.html?_r=1&oref=slogin Edmund L. Andrews. The NY Times.

http://www.nytimes.com/2008/10/24/business/economy/24panel.html(Joseph Stiglitz, The fruit of hypocrisy; Dishonesty in the financesector dragged us here, and Washington looks ill-equipped to guide

us out, The Guardian, September 16)

http://governanceblog.worldbank.org/capture-and-financial-crisis-ele-phant-forcing-rethink-corruption

http://www.dawn.com/2008/02/04/ebr17.htm

Isambard Wilkinson. Pakistan Facing Bankruptcy. November 17,

2008

About the Writer

Jia En Teo is an online entrepreneur and writer who cur-rently resides in New York City. Aside from her online ven-tures, she has great interest in issues related to social

entrepreneurship, corporate social responsibility and theenvironment. She graduated from the University of Michigan with aBachelors in Political Science and Economics.

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doing business and ensure theimplementation of contracts.

A look at Pakistan's performanceon WGI between 1996-2007reveals that not much progresshas been achieved on any of thesix determinants of good gover-nance. In fact, Pakistan's rankingin the world has declined on all ofthese indices during the last twoyears.

There is a genuine concern at alllevels of elected representatives,public functionaries, civil societyand among private businesses,about suboptimal governance inPakistan, which results in ineffi-

ciencies in the economic sector,implementation of basic rightsand security, and poor provisionand quality of public goods andservices.

Pakistan has gone through struc-tural adjustment programmesfunded and endorsed by IFI's(International FinancialInstitutions) with the aim ofimproving governance, institu-tions and the economy. During

the last two decades, Pakistan hassignificantly reduced subsidies onfood and fuels, liberalized itsfinancial markets and is nowimplementing second generationfinancial reforms. It has success-fully privatized the public-runbanking sector, fertilizer plants,its national telephone company,public transportation and theElectricity Supply Company of itsbiggest city.

In spite of these efforts, gover-nance in Pakistan has seen mar-ginal improvement, if any. Forexample, telephone services havenot shown any improvementsince the management of thenational monopoly has beenhanded over to a private entity.Amounts spent on the capacitybuilding of judicial officers, publicofficials and public representa-tives in three tiers of government

over this time period seem tohave not affected them in a sub-stantial way.

Rule-based versus Relation-based GovernanceThis scenario is better explainedin the framework of a rule-basedsystem of governance versus arelation-based system. Rule-based

governance is based on explicitand clear contracts with clearmonitoring mandates.

Maturity Indicator: Rule-GovernanceRule-based governance consists ofa mature informational infrastruc-ture such as auditing, accounting,rating agencies, legal codes, cases,and efficient regulatory regimes.Until universal informationalsharing is possible; laws on paper

are mere ink. All these accumu-late with time as accountabilityprocesses take root in a continu-ous and representative democraticsystem.

Establishment of rule-based gov-ernance in a country is a long evo-lutionary process, since rules canonly be implemented if all deci-sive players have mutually consis-tent beliefs and they become com-

mon knowledge.

Dysfunctionality Indicator:Relation-GovernanceIn the absence of rule-based gov-ernance, countries function undera 'relation-based governance' sys-tem, whereby most transactionsare based on personal and implic-it agreements.

Governments are usually not ableto enforce contracts and regulateimpartially. Players are moreinterested in getting a larger sharein the pie rather than increasingthe size of the pie. All decisionsare made taking a short-termview and taking into accountimmediate gains. The incentivematrix in this case resembles aprisoner's dilemma whereby col-laboration will result in valuemaximization while deviation isunilaterally beneficial and results

in inefficiencies. Ex-ante behav-iour of players is based on theirexpectations for their ex-post bar-

gaining power which in turn isdependent on ex-post institutionalarrangements and also the behav-iour of the government (for exam-ple, whether it is predatory,benevolent, partisan or other-

wise).

The Effects of Relation-BasedGovernance in PakistanRelation-based governance iscommon in countries where thereis lack of circular monitoring.There is no clear separationbetween judiciary, legislature andexecutive levels - or one arm isoverwhelmingly powerful. Insuch scenarios, business is carriedout and contracts are made purely

on local and personal knowledgeand through personal 'rapport',resulting in large individual gainsat the cost of a maximization ofgains.

The transaction cost is negligiblein these cases, unlike in the rule-based governance system, whichinvolves large total fixed transac-tion costs. The average transactioncost however is high in the form

of suboptimal use of resourcesand inefficient outputs.

Quite recently relation-based gov-ernance in Pakistan has manifest-ed in the hoarding of food essen-tials, speculation on commoditiesand currencies and a price bubblein stock markets in the backdropof hapless state regulation: Thus,yielding high inflation, devalua-tion of the rupee, depleting for-eign exchange reserves, a slow-

down in economy and risingunemployment. The result? Fewwinners - and the rest, all losers.

tbl nov-dec 08 17

special report

About the Writer

Ahsan Ali Mangi is DirectorPlanning (Education) at

Earthquake Reconstruction andRehabilitation Authority (ERRA)and former Director Food,

Sindh. His research interests include causes ofinequality between and within nations and itsimpact on human well-being and the political

economy of Food. He holds a Bachelors inElectrical Engineering and a Masters in

International Development from the UK.


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corporate responsibility in theage of irresponsibility:a symbioticrelationshipbetween csrand the

financialcrisis?

18 www.tbl.com.pk

futuralysis: the financial crisis and csr

by flavia thomfor tbl

Trying to understand the futureimpact of the financial turmoil ofthe last few months on the manyinstitutions and actors on the

global stage, is a daunting yet fas-cinating process. The analysisforces us to take a step back andview whatever it is that we maybe aiming to understand withrather critical eyes - in my case itwas through the lens of CorporateResponsibility. As an advocate ofCSR, I often spend my time fight-ing the cause and countering itsmany critics. However, as Iattempted to make sense of theeffects on CSR of the recent finan-cial crisis and potentially extend-ed recession, I was able to seemore clearly how close the CSRindustry may be to its demise if itdoes not radically re-shape itself.

Financial Crisis: The Causes &CSR's RoleThe causes of this turmoil aremultifaceted. Although manyissues remain unclear, there are a

couple of conclusions to take fromthe crisis. The first is that this wasa crisis of responsibility, or lackthereof. The second is that it will

only be repaired by the re-estab-lishment of trust between compa-nies (especially those in the finan-cial sector) and their stakeholders.

Logically, this presents a perfectentry-point for CSR to be finallyrecognized by the business com-munity as a force of necessarygood and long-term sustainabili-ty. The emphasis placed by CSRon the role of corporations in thelarger social and environmentalcontract is key in preserving anideal equilibrium of confidenceand responsibility.

However, in its current shape

CSR has opened itself to yet morecriticism with strong anti-CSRarguments being voiced by busi-nesses, academia and the media.Understandably, in a crisisdefined as one of corporate irre-sponsibility (and arguably also ofindividual) it is only logical thatthe inability of CSR to ensuredeep-rooted accountability andbusiness governance is beinghighlighted and condemned. Is

this crisis not the antithesis of thecore principles of CSR?

What The Crisis Means for theCSR IndustryAs we focus ahead, I can see threepossible paths for the CSRindustry:

Path 1: CSR Fad FadesThe business community will dis-

miss it entirely as a fad thatserved a role in creating a marketfor ethical and environmental

This has been an age of globalprosperity. It has also been an era ofglobal turbulence, and where there hasbeen irresponsibility we must nowclearly say the age of irresponsibilitymust be ended.

PM Gordon Brown, UN General Assembly (September 26, 2008)


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tbl nov-dec 08 19

products but does not have awider purpose in society. As apotential recession looms, busi-ness expenses will be reducedonly to essential and CSR will beconsidered a 'nice-to-have' but

unnecessary outflow. Cost-cuttingwill result in a number of corpo-rate activities and sponsorshipsbeing axed.

Philanthropic activities will beconfined to foundations ratherthan to corporations, which is ashame because those in need ofcharity are particularly vulnerableduring times of crisis and weakeconomic prospects. Nonetheless,this kind of CSR was arguablyunsustainable anyway as it hadlittle to do with integratingresponsibility and governanceinto the core business model.

Path 2: Active CSR Survives - notThrivesThe second outlook for CSR isthat companies will come to real-ize just this and understand thatCSR must play an active ratherthan superfluous role which may

be relinquished during hardtimes. Organizations may chooseto engage in actions where theirproducts or activities are linkedto a wider social or environmen-tal good. For example, a comput-er manufacturer joining handswith local schools by supplyingclassrooms with computers. Onthe other hand, responsibleactions should be recognized asnot just necessary but a businessimperative. It is good business tounderstand the role that yourorganization plays in the broadersociety and to leverage yourresources in order to manage andsatisfy your stakeholders.Keeping CSR at the periphery ofthe business model will go someof the way towards improvingstakeholder relations and re-establishing much needed trust.However, this form of CSR willdo little to bring about long-term

business and market sustainabili-ty, consequently also little toavoid future crises like the one

we face today.

Path 3: Non-peripheral, Wide-scale Sustainable PracticesThe third model builds upon thelast two and benefits from my

eternally optimistic view of theworld. In light of the shocks theworld is experiencing and the crit-ical need to re-establish trust withstakeholders, companies will nothave a choice but to make CSR amain concern.

In this model, I look beyond theCSR which encourages employeesto plant trees in low-income hous-ing areas or companies to donatecomputers to schools. Evidently,these are valuable actions in theirown right; both in terms of the

benefits to society and the posi-tive corporate culture it fosters.But peripheral CSR, even if strate-gic, will not be sufficient to mini-mize risk and promote the long-term health of the system.

As we look ahead to perhaps thelargest crisis of business confi-dence, it is time to shift the focusaway from short-term gains tolonger-term economic, environ-mental and social successes. Evenin the catastrophically affectedfinancial sector, organizationssuch as the Dutch Tridos Bankand the UK's Co-operative Bankhave proved robust due to theirfocus on transparency andresponsible investing. TridosBank's CEO, Peter Bloom,explained that "by lending tobusinesses and projects that aresustainable financially, as well associally and environmentally, we

balance a positive impact on soci-ety with a healthy financialreturn." Hence, "by sticking firm-

ly to our own approach, the crisiscurrently impacting the bankingindustry is bypassing TriodosBank. This crisis is caused by los-ing touch with the real economy."Embedded CSR targets good gov-

ernance, accountable leadershipand ethical practices so as toensure that they create opportuni-ties and contribute to increasedperformance. This is the openingfor CSR to demonstrate itsstrength and power to bringabout the changes needed in thebusiness and financial sectors pro-moting the adoption of sustain-able practices on a wide scale.Sustainability, after all, is whatwill determine whether a business

will outlive the actual andinevitable crises of the future.

Symbiotic Relationship ForgedAs I look at these three pathsahead, I realize that this crisisforces corporations and CSR intothe perfect symbiotic relationship.Businesses cannot afford to allowfor the demise of CSR, as it pro-vides the only way out.

Embedding responsible actionand ethical conduct into the corebusiness will go a long way tore-establish trust and re-connectstakeholders. At the same time,CSR must re-shape itself andinstill confidence in its funda-mental importance to corporateand market sustainability. Onlyby working together with thesame goals and priorities, willbusiness and CSR guarantee their

own survival - and, maybe eventheir victory. The economy,environment and society will bemuch obliged.

About the Writer

Flavia Thom has worked as aconsultant for Accenture and iscurrently working as a

Programme Administrator at theInternational Institute for

Sustainable Development (IISD), based inGeneva. Born in Brazil, she has a BSc in

Economics and International Development andan MA in Global Ethics from the University ofLondon.

special report

Peripheral CSR, even ifstrategic, will not besufficient to minimizerisk and promote the

long-term health of thesystem.


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csr in turbulent times

Turbulent times: Financial storms in the US and UK will have implications for all

of us. Main Street and Wall Street cannot be separated. If the captains of those

financial companies, now in crisis or bankrupted, had acted more responsibly with

a proper Corporate Social Responsibility (CSR) strategy, then their vessels would

not have sunk nor would they be on the brink of foundering. Responsible business

will be the new mantra. Indeed, we go further, and suggest that the demise ofinvestment banks in their present form would be the best news possible for CSR!

What went wrong?Lehman Brothers stated in its2007 letter to its shareholdersthat:"Strong corporate citizenship is akey element of our culture. We

actively leverage our intellectualcapital, network of global rela-tionships, and financial strengthto help address today's criticalsocial issues."

Regarding sustainability theystated:"As a global corporate citizen,Lehman Brothers is committed toaddressing the challenges of cli-mate change and other environ-

mental issues which affect ouremployees, clients, and share-holders alike. It is critical that we

continue to develop initiatives tofocus on these challenges facingour environment now and in thefuture."

They had corporate responsibili-ty too and noted in 2007 that:"We are also looking inward. In2007, Charlotte Grezo, an expertin socially responsible businesspractices, joined the Firm as glob-al head of Sustainability and pres-ident of the Council on ClimateChange. In addition to oversee-ing the Council's activities, shewill further the development ofthe Firm's own environmentalpolicy and strategy."

Charlotte, as many readers willknow, was the former head of

CSR at award-winning Vodafone- but Lehman's announcementshowed that their focus was moreon environmental concerns thanstrategic CSR which examines allkey stakeholders.

In fact we at MHC InternationalLtd had suggested to LehmanBrothers early in 2007 to carry outa strategic CSR review and toexamine all stakeholders. Ourproposal was not accepted. Acareful stakeholder analysis couldwell have discovered Lehman'sproblems in the sub-prime marketand alerted top management.Yet, as Mallen Baker noted, "BearStearns produced no CSR reportof any sort. Lehman Brothers didnot produce a CSR report, butthey produced a philanthropy

by michael hopkins, julian roche and ivor hopkins

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csr now neededmore than ever before


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report. Even if they had gonefurther, it seems unlikely that thecomplex nature of how theycreated wealth would have been afeature."

Recap on what investmentbanks doThey earn their money through amixture of means: trading andbroking stocks and shares -including short selling andderivatives - providing advice onmergers and acquisitions, andIPOs, investing in private equitydeals of one sort or another, andstructuring deals such asecuritization and public-privatepartnerships. They have beenresponsible, in large measure, forthe current financial crisis.

What have they been doing toachieve this? Their private equityinvestments have strippedcompanies of jobs, merged themwith their competitors, andstacked them up with risky debtprovided by eager bankers. Thedebt has been securitized intranched revenue deals that

ended up with pension fundsholding toxic securities they donot understand, and then creatingexotic securities with paymentprofiles that defy even the mostcomplex modeling. When theyhave not been 'rationalizing' com-panies, they have been pushingcompanies to accept externalequity, or creating market solu-tions for problems that defy mar-kets.

Carbon trading is an excellentexample. CSR would suggestvoluntary curbs by individualfirms, backed up with strongregulatory control by responsibleGovernments. What is the invest-

ment bank solution? Carbontrading, of course: let the rich buythe right to pollute, and let thepoor be obliged to pay transactionfees to investment banks to let ithappen!

How could CSR help?CSR is about companies slidinginto the role previously occupiedby Governments in taking respon-sibility for making the world a

better place for all their stake-holders. Ban Ki Moon, Secretary-General of the United Nations,recently used his openingremarks at the General Assemblyto question the reliance on freemarkets: "We need a new under-standing on business ethics andgovernance, with more compa-ssion and less uncritical faith inthe 'magic' of markets." How righthe was. The investment banks

have been the wizards of marketmagic. If investment banks are tobe truly socially responsible, theyneed to change what they do fun-damentally.

What could investment banks doinstead? Clearly, they need to beproperly regulated. But moreventure capital investment, infra-structure investment with guaran-teed maximum rates of return,

and more socially responsibleinvestment - and less, much less,private equity, would be a start.

The plain fact is that investmentin socially responsible business is

highly unlikely to exhibit the sortsof returns that the shareholders ofinvestment banks seek, so acompact amongst the investmentbanks and the analysts will beneeded. The new financial archi-tecture, in which CSR could playa major role, will render suchattitudes socially unacceptable tostakeholders and even subject to

judicial review.

A code of practice amongstinvestment banks limiting theextent of their involvement intraditional private equity dealsthat slash jobs would be helpfulhere - for instance, the UNPrinciples for ResponsibleInvestment. Such a code couldalso limit the amount of debtinjected into any one deal toprevent undue risk creeping backinto the system as it did after thefailure of the junk-bond market -

never again, said the regulators atthe end of the eighties - yet lookwhat's happened now. A commit-ment not to use certain types ofsecurity altogether, such junkbonds, could follow on.

More than that, such a code couldalso be worked out in conjunctionwith the rating agencies so thatthere is far more disclosure ofrisks than hitherto. The rating

agency models failed onsub-prime. But if voluntarydisclosure by the investment

tbl nov-dec 08 21

special report

The investment bankshave been the wizards

of market magic. Ifinvestment banks are to

be truly sociallyresponsible, they needto change what they do

fundamentally.


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banks were combined withsimilar constraints on retail banklending, backed up by strongerregulation, the raw material forthe structuring which has led theglobal economy, at least in the

West, into such difficulties wouldbe in shorter supply.

Something also needs to be doneabout securitisation, structuredfinance and tranching in general.For instance, a general guaranteeby investment banks over all theirstructured products - effectivelyforcing them to act as their owninsurers? They would charge forthese services, of course, but itwould prevent them from making

money out of securities overwhich they have no future inter-est once issued, which has createda situation of moral hazard timeand again.

CSR companies should have notruck with moral hazard so thisalone as a yardstick of futureinvestment bank behaviourwould be useful. Investmentbankers have long been able to

avoid the responsibility of actualentrepreneurship, so tying theirrewards more closely to theirdeals would be a step in the rightdirection.

Sadly, however, all this is veryunlikely. With all the attentionbeing focused on the demise oflarger investment banks, what isbeing forgotten is the quiet rise ofnumerous boutique organizationsspecializing in M&A advice orone particular sector. Such small-er companies don't even need tocloak themselves in the veneer ofrespectability that the larger onesdid, and will be able to continuethe relentless pursuit of share-holder value for their often tinyshareholder base without theglare of public attention.

If Ban Ki Moon's vision is to berealized, then governments need

to use corporate tax to deflectinvestment away from financialdeals and towards socially

responsible investments in suchareas as alternative energy, foodtechnology and low-cost housing.Of that, not a word fromCongress, not a word from WallStreet. At times like these, invest-

ment banks are not likely to turnto CSR consultancies such asMHCInternational for advice. It'sa shame: if they had done whentimes were good, times would bea lot less bad now.

What to do next?There are a number of steps as wenoted in an article written byMHCi as far back as 2002!

First, CSR can help. A majorstakeholder of a firm is itsemployees. CSR does not implythat downsizing should beprevented, that would be absurd.What it does imply is thatcompanies must make an effort toorganise layoffs in a sociallyresponsible manner. This couldinclude early warning, coun-selling, re-training, temporaryfinancial assistance etc. The

tendency of US companies to giveimmediate notice is bothdistressing and can be counter-productive once re-hiring startsagain. There is no doubt thatthere is an unequal powerbetween companies andemployees. A company canrecover, it has its own institutionssuch as banks willing to keep itgoing through hard times. Aredundant employee has none ofthese advantages and is in a very

weak position once he or sheleaves the confines of an insti-tution.

Second, CSR urges transparencyof operations through sociallyresponsible reporting of activitiessuch as informing shareholdersand staff about off-balance sheetholding of debts. Enron, forinstance, may well have been inmuch better shape today if it had

behaved in a socially responsiblemanner. Even though Enron wasa lavish donor, Simon Caulkin of

The Observer (Feb 3rd, 2002)regarded this philanthropic formof CSR as a 'figleaf' and 'of a piecewith Enron's overall strategy'. Infact, CSR is an overall strategy forsystematic management of all of a

company's stakeholders and is notconfined to philanthropy.

Third, CSR has not been given asmuch prominence on Wall Streetas it should simply because of thelegal framework under whichmost corporations operate. RobertHinkley argues , for the USA, thatthe law, in its current form,actually inhibits executives andcorporations from being sociallyresponsible because the law

baldly states that the purpose ofthe corporation is to make moneyfor its shareholders. Any devia-tion from that could leave thecorporation open to a lawsuit. SoHinkley suggests simply adding aphrase on CSR to corporate lawso as to enhance CSR. Law, headvocates, would then readsomething like: Directors andofficers have a duty to makemoney for shareholders, but not

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the corporation operates or thedignity of its employees.

Fourth, CSR has a positive impacton the intangible assets of a com-pany. A company's clear ideas onits identity and long-term goal,

can help it to identify two sets ofvariables: one a 'value creatingpath' and the other a set of keysuccess factors (KSF) and indica-tors that are appropriate as per-formance measurements. Such aprocess is very similar to develop-ing CSR in a company which, inturn, will have a powerful effecton developing intellectual capital,a significant part of a company'sintangi

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