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Conscientious commerce: TranscriptOn May 29, 2007, the first Principal Voices round-table event of 2007 took place in Johannesburg, South Africa. In front of an invited audience, the panelists discussed how business can play a major role in improving the communities in which they operate and how social entrepreneurs are at the forefront of forging a new type of conscientious commerce. An essay about the discussion can be read here and a page of key quotes here. Participants
Moderators: Michael Holmes (CNN) and Robert Friedman (Fortune Magazine). For ease of navigation, the discussion is separated into the following parts:
Introduction to the event by Michael Holmes and Robert Friedman
Rory Stear: If you speak at business schools everyone wants to hear how you sat down, drew up a business plan, executed it flawlessly and then we all lived happily every after, but it certainly didn't work like that at all. What we started with was a socially responsible product that was empowering. There's a massive energy issue on this continent, in fact in the world today 35 percent of the world's population has zero access to electricity and another 35 percent have intermittent access, so straight away as an entrepreneur there's an opportunity and good business reason to be involved in providing energy access. That was the motivating thing right up front - an opportunity to take something to market that people really needed with a piece of equipment that we should be able to do very well out of. We had a hell of a lot of luck in the early days. We got very unconventional financing sources, the British government gave us seed capital which isn't really their business, but they gave us £150,000, which back in 1994 was still real money in rands. The money was there to take a product that wound up for a couple of minutes and played for about eight minuets and make it into a commercial structure. Because it was also the time of the Rwandan genocide and the power of radio was being demonstrated and what it could do in that case for the forces of evil. So we got early capital and raised some from the Liberty Life Foundation here in South Africa. My dear friend Milton Applebaum was a great supporter of this project right from the start and saw the benefits of it. We were lucky that the BBC made a documentary about it, Anita Roddick of the Body Shop saw it too, and so capital flowed. The one thing that was most disappointing about trying to start a business like this from a South African base, and I hope it's better for entrepreneurs now, was the [lack of] access to this kind of venture capital in South Africa at the time. I must have made countless presentations to institutions but really got nowhere. The next thing that was really an eye opener was that here was a product that was clearly appropriate for Africa and other parts of the developing world, but the distribution channels just didn't exist to get this product to market at the price we needed to. The protectionist nature of the economies across the developing world was another major hindrance. We ended up having to look at it and say "Look, there's a huge camping and emergency preparedness market in the United States, we're going to run after that." So it was a long way away from what we wanted to do and to this day we do the majority of our $70 million of sales with the U.S. and UK and aid organisations, rather than retail through the developing world. We're working really hard to get that model right now. It became a necessity to get this to the people who needed it the most, but could afford it the least, to look at the entire structure and model of our enterprise to set up our own foundation. Now the Freeplay Foundation is a South African, UK and U.S. registered charity and it's not a grant making foundation, it's an implementing foundation and the Freeplay Energy group is the core funding. The toughest money to get, as any of my colleagues will tell you, for not-for profits is money for overheads. Everyone wants to fund projects but no-one want to fund the necessary things. For those of you who are donors, I'd ask you to come with an open mind when people come to you with a funding call. Freeplay provides about half today of what the foundation needs to run programs across thirteen African countries. And really their mission is to provide access to information. With something as simple as a radio, and now the cell phone, it's really helping to cross not just the digital divide, but the analogue divide on a continent that's only 20 percent electrified and a vast amount of people have zero accesses to electricity. Reliable information is an extraordinarily difficult thing to get. Robert Freidman: Are you working on a wind-up cell phone? Rory Stear: [Smiles] We did with Motorola. We did a charger for cell phones that is now widely used in India. It's being sold there literally in the millions. India grows at 6 million new phone users a month, about 100 million users across the continent of Africa. And the charger is powered by hand and plugs into the bottom of the phone. One minute of cranking will deliver a 6 or 7 minute call. That doesn't sound like a lot of time, but when you have zero access that's a lot. Robert Friedman: There is now a wind-up for the $100 laptop. Rory Stear: Yes, and we've done the wind-up for Nicholas Negroponte's computer. We did the engineering. It's a $170 computer now, but they've done a fantastic job of taking the cost of a laptop down. Robert Friedman: So there's a really simple idea that has broad implications. You should be fortunate that there's an actual retail market in the United States. It seems like that was an important part of your success. Rory Stear: Yes, the developing world's markets are not sophisticated enough to be able to easily accept some of the technology that's most appropriate for those countries. Michael Holmes: Kailash Satyarthi has actually physically freed children from bonded labour and continues despite getting death threats. In fact two of you colleagues were actually murdered, but the work does continue. It's been phenomenally successful. I think 4 million or so Rugmark rugs have been sold in the U.S. The importance of what you're doing freeing children from that way of life can't be overstated, but you've also managed to parlay that into a business. How difficult was it to take that step into a truly conscientious commercial operation? Kailash Satyarthi: For ages the issues of child slavery has been one of legal enforcement or sometimes charity or social activism. But I was frustrated seeing the growth in export of rugs from India, Nepal and Pakistan and that child slavery was also increasing and that compelled me to think of a solution linking with the corporate as well as with the consumers' consciences. Because it had not been attempted before; how consumer power can change the corporate behavior and eventually change the lives of millions of children. So we started rescuing children in 1980 returning them back home and we were happy with that, but we have seen a larger number of children in various industries, especially the export industries like rugs. We thought why not go to the consumers? To begin with in Germany because they are the largest buyers of Indian handcrafted carpets, and then we extended it to the rest of Europe and the United States. And we saw an enormous response when consumers saw the beautiful rugs were made from the blood and sweat of children - about a million children are involved in making rugs in South Asia alone. I saw the response was very spontaneous. People started demanding. I didn't want to go for a total boycott or sanctions or ban, which is much more negative - negative on the industry, on the consumers negative on the producers - so the difficulty was to find a solution oriented approach. Then we went for a system that we called Rugmark that is based on an independent, multi-sectored alliance. It's a voluntarily built system as well as highly professional that includes inspection, monitoring, labeling and eventually rehabilitation and education of the children found by the Rugmark inspections. It's a kind of holistic approach that is giving solutions to the industry, solutions to the buyers and consumers. The children that are rescued are in schools. According to the latest U.S. department of labor studies, the number of children in bonded labor and slavery in South Asia has come down from 1 million to 300,000. So 700,000 children have benefited from it and many more besides.
Now that the children are in the schools, they're going to become a healthier, skilled workforce for the carpet industry and other industries as well. We're not confining it to carpets alone. It's a successful strategy which we can expand to the sporting goods industry in India and Pakistan. A large number of children were involved in similar conditions there - sold like animals, confined to workspaces, never allowed to go back to their parents, living in extremely hazardous conditions and the laws were not being enforced - so we've gone again for the consumers' good conscience and the business to follow good practices. We've approached Fifa and other groups and that as also worked. With the chocolate industry we've gone beyond that. A large number of children were involved in the cocoa-bean production in Ivory Coast, Ghana, Indonesia and other countries, so we started working in collaboration with the chocolate industry, ILO, consumer organisations, trade unions to find a solution, which is also going quite well. The clean clothes campaign is another that we're involved in - we didn't initiate it - but consumer consciousness is one thing, but also making the business accountable. Not all business people are bad, that was my opinion from the beginning. If we go to them with a clear approach they will realize that using children is not beneficial for them. Children can't make the best quality of rugs or anything. So it's better to have adults, educated and healthy, and that is working. And the brand promotion is also very important. We've have given the solution of building a better image for a lot of big brands. So it's not always charity, not always about philanthropy, but the behaviour of supply chains and making the whole business, as well as the consumers, more responsible and more accountable. Michael Holmes: Is the key for all of that to get to the consumers? A lot of businesses are going to be looking at the bottom line. Is the key to get to that grass roots level? Kailash Satyarthi: Actually knowledge is very important. The people are not all aware that children are making those things in extremely inhuman conditions, or a lot of other things, like clothes or toys that their children are playing with. The most important thing is education and sensitization.
But to answer that old lady and the rest of the world I was under great pressure to find a solution and there was no example to learn from, so we had to create a system out of our own experience. To design the fool-proof monitoring, mechanism, certification and labeling, and that worked. So I'm sure that the old lady and others can find a carpet without child labour. Michael Holmes: Impressive that consumer pressure allied to big companies makes them become more ethical and as you said, down the line, more profitable. Robert Friedman: I have two quick follow up questions. What percentages of rugs coming out of India today have the Rugmark label? Kailash Satyarthi: From India about 30 percent, but from Nepal it's about 70 to 75 percent. Nepal has done very well. Robert Friedman: And my second question is, does the Rugmark label just certify that there is no child labour or are there other issues that it deals with? Substituting the exploitation of children for the exploitation of adults would not be a good thing either. Kailash Satyarthi: No we run a lot of activities starting with consciousness raising and awareness at ground level in communities with the parents of children, and then we run some rehabilitation programs. We are also addressing the problem of getting better working and living conditions for adult workers. We have not been so specific on the details of it, but one of our criteria is definitely good working conditions and better wages for adults. Michael Holmes: Let me move on to Ngozi. You live and work here in South Africa, you've lived in Nigeria and I think you've spent some time in the States, with a background in banking and finance mostly as an advisor for small and medium sized businesses to get them growing. You come at this from a different perspective, which is not necessarily about making worthy products or changing the behaviour of big corporation, but to create businesses because that in itself is a socially progressive thing to do. Can you talk a little about your experiences here in South Africa and your vantage point on these issues on small and medium businesses? Ngozi Awa: Before I talk about small and medium businesses in southern Africa, there is a panel here of four people, why is there only one woman? [Laughter and applause from the audience]. Michael Holmes: Erm, speak to the organizers, but that is a very good point. Ngozi Awa: My background in small businesses came from when I was in the United States doing an MBA and looking at the structure in the U.S. and how it supports small businesses. I decided to get into consulting, which I did with the World Bank, with the UN with the IFC. Each time I went to Africa, I looked at this pattern to support small businesses. I call it "adopting" U.S. or industrial countries' concept to the African situation. I look at it and see we have a lot to learn from developed countries and how they function, but we also have to put a local content to it. When I joined the UN, I was sent to evaluate a 15 year UNIFEM project in Swaziland. Every two years they said "we need another $15m" and they pump the money in, but the last time I went, the local payment was two and a half percent. They said that the women weren't entrepreneurial; there was not a market or technology, the usual things we all hear about. When we got in there, I decided to hear from the women themselves. I'm talking about the local content, the culture in Africa, apart from the corruption that is. The first issue was that the women were trained, given a loan, given this asset without the consent of their husbands. In Africa, the husbands' involvement of acceptance is quite important, at least to women. In one house they used the machine they had been given as a table for decoration, they didn't work with it. In another house we went and talked to the husband who said: 'How dare you come into my house, train my wife without my authority, give my wife a loan without my authority and now you want me to pay. You can get your money elsewhere, because my wife is not working without my authority." I'm not saying I support the marginalization of women. I'm just saying, before you do certain things you have to take into consideration our culture. Then we come to the issue of thinking that because the women are illiterate they don't have common sense. This money to service the loan was supposed to be collected by the bank and there are mobile banks that go to the villages to collect the money. One woman did something amazing. She cannot speak English, but she can write in her local language, so each time she paid here mobile bank, she wrote the time and date of when she pays this man. She might not know the date even, so she writes something that happened that day. She did that and kept this record for three years. She was one of the ones they wanted to take the machine from because they said she did not repay her loan. She pulled out her record and showed it to us. She said each time they came to her, she showed this record to them, but it never appeared in any official record. Its things like that made me decide that I would like to come back to South Africa and set up a consultancy for small businesses. Of course there is a different set of problems when you're talking about small businesses. When you're a woman, you're black in Africa you talk about finance, it's very difficult for people to take you seriously - it's getting better now - but I find that the structure to support small businesses is not in place. Don't get me wrong this is one of the countries in the whole of Africa, with Botswana, that has a very good, what I call, support system in place for small businesses. But are they functioning? The problem we see is the support system in place and the ability of the small businesses to actually access those funds. Robert Friedman: Let me ask you a question about women. The experience of Muhammad Yunus in Bangladesh with the Danone project, it's all women involved. Ninety five percent of the people who get the loans are women. The repayment rate is extraordinarily high and the result has been that the women feel empowered. I know Bangladesh is not southern Africa and there are cultural differences between countries, but do you really think you can't get to the women unless you go through the men?
And another issue is that South Africa set up a system putting controls in place to support women. There's something called the BWO - black women owned and operated businesses - which the government has put in place and a lot of women are taking advantage of that. If you look a percentage of the women that are accessing this, more of them are single than married. Robert Friedman: I know we have in the audience a woman who runs a mining company, who can get involved in the debate later on. But one more question before moving on. What is the advice that you give these companies about how to grow a business? Ngozi Awa: There are several funding structures in the country. My job is to look at the requirement of the funding institution and try to reach their requirement. The first thing people will tell you is that commercial banks are not sensitive to small businesses. I don't think commercial banks should be given this responsibility; they have financial responsibility to their share holders, that's why we have DFIs [development finance institutions]. The issue is, do SMEs [small and medium enterprises] have the ability have to access this fund without support? Most of the time the answer is, no. We help them prepare the business plan, negotiating the interest rate and sourcing the funds for the small businesses, as well as providing mentorship and aftercare services. Michael Holmes: Rick Aubry, you've run the company Rubicon for over two decades, regarded in the field as a leader in social entrepreneurship in the United States. It takes on the most visible social ills of homelessness and takes on those people that no-on else wants, trains them and gives them hope. It's become a real growth area, which is great for Rick and also the people involved. In fact Rubicon Bakeries has become a high end product. Tell me what social entrepreneurship is and how you apply it to what you do? Rick Aubry: When you boil it down the essentials, it's very simple. It's just using all the skills and attributes of entrepreneurship and thinking about how systems work, how new systems can be innovated and apply that to solving social problems. So a Google company might come along and fundamentally change the way we get our information, and that's what you think of as a traditional entrepreneur. But what Rubicon and other social entrepreneurs do see is a market failure, poverty in the United States in our case, that's not being touched by government programs and we use new ways of using resources that are already there. So commerce, changing how funding comes into a program and we change significantly how resources are used so that someone can be moved out of poverty instead of enrolling on one more training program. So that's what social entrepreneurs do, they look at what has failed and look at why and apply market forces in dramatically different ways. Michael Holmes: You've shown with the bakery that a company can have that social responsibility and it's been very successful. Rick Aubry: That's because we recognised fundamentally that customers were going to buy our cakes and hire us to do their landscaping because they were interested in a high quality product. They like the fact that good will come from it, but people will buy a not-for-profit cake once, but the best cake forever. Michael Holmes: What happens to your employees? Rick Aubry: The transformation is quite remarkable. People come to us who want to change their lives, but have been failed by the education system or social services. They're changed by having a job, by being part of the community, by having support, retaining their jobs and earning more and more money, buying a house and transforming their lives and those of their families. Michael Holmes: Do you think social entrepreneurship is gaining traction in the United States? Rick Aubry: It's definitely a buzz word. When we started two decades ago, we were one of a handful of organisations doing it. Now there's a thing called the national gathering of social entrepreneurs, where about 600 organisations come. So one a grass roots level it's getting a lot of attention. Robert Friedman: In listening to your comments I've been struck by the fact that although these tales have happy endings, it wasn't easy. So this is not easy work. I'd like to ask, how do we change this from a boutique operation to a main stream scale? Rory Stear: Firstly, it's a huge area and it depends on what area you work in, in the developed world right now. Al Gore's movie and books have been a huge catalyst for this; consumers really want to identify with products that are being a force for good.
As Rick and I were talking about this morning, you still have to get past the buyer whose remuneration is based around the margin he can generate for the product and he's really not stressed where and how the carpet is made. He's thinking what's the cheapest you can get it to me - so there's' still a disconnect. In the developing world the debate is at a national and government level. The protectionist nature of economies is the single biggest problem that any company has in being competitive. Governments aren't taking the long view of allowing these services and products to build an income internally. We spend a lot of our time and our lobbyists try to negotiate with governments to change the playing field. Kailash Satyarthi: First of all business must understand they cannot flourish at the cost of ruining the childhood of millions, because the media is there to watch them, civil society is getting stronger and spreading all over the world - you can see it with consumer consciousness and more importantly the very poor people are demanding education for their children. They realise that education means empowerment and the opening of doors for everything. It's very important that businesses must come out with strong social responsibilities and must not break the laws of the land or the international laws and treaties, which most f the countries have signed up to. For example, 160 countries have signed up to Child Labor Convention. When you talk of corporate behaviour it shouldn't be confined to the internal monitoring by companies, we should go for more transparent and multi-stakeholder approach, where consumer bodies, civil society, communities and corporations can work together to find solutions, governments as well. That should be a more participatory approach to solving the problem than finding their own internal way. Robert Friedman: Ngozi, do you have any thoughts on moving this on to the next level? Ngozi Awa: We need entrepreneurial training of SMEs to think outside the box, to think of other innovative ideas. It is there on paper, but we need to move it from paper to implementation.
Rick Aubry: I think business, consumers and investors will ultimately have to solve it. Government may be able to help in term of tax structures, so there's somewhat of a role of them, but fundamentally it's going to come from much greater transparency in terms of how companies do responsible business. So it's not just a claim that somebody makes, but there are actual organisations that can work with Fortune or CNN to annually say which are the most socially responsible organisations. Published scores on social responsibility might start effective consumer behaviour, because it's not just a claim by a certified third party system that gives both consumers and investors more idea. Ten percent of capital in the U.S. flows to what is thought of as socially responsible companies. Most typically they are negative claims saying they won't have a particular sin in their portfolio. What's more positive could be a list - investors have already shown they're willing to trade off a little bit return for social responsibility. But they really need an outside mechanism that gives them an insight into who truly is socially responsible. Everyone claims they are socially responsible, so right now it doesn't mean anything for investors. Ngozi Awa: If you buy into business you are supposed to take an active part. Now can we blame that on the government? The government has set up the policy, it's how it's implemented. You cannot factor in human nature. We have to take it back to ourselves to support a more enabling environment. Kailash Satyarthi: I disagree with that. We must not undermine the responsibility or the accountability of the government. The government has to be held accountable, even though human nature is there. We initiated Rugmark when we saw that the government inspection system wasn't working well in the field of child labor, but it does not mean we should let the government officials off scot-free. We are paying their salaries and we should hold them responsible. There are international agreement and treaties and norms and it is their responsibility to implement them, so we cannot ignore that. We build pressure through our own positive solutions, all of us in our own way. Ngozi Awa: Are government employees not human? They are only human beings... Robert Friedman: But that's no excuse. Ngozi Awa: I'm not making excuses for them. Kailash Satyarthi: The people who are murderers, the people who are thieves, and the people who are criminals are also human beings! Ngozi Awa: But we cannot focus here on Africa alone. Everything we say must go back to human nature, because we are all human. It depends on your value system as a human being, whether you're a government official or a SME business man. Kailash Satyarthi: So why don't we draw that value system from living legends like Nelson Mandela in this part of the world, he is also a human being. So yes there is also human nature, why can't we draw some values from people like him? Robert Friedman: I like the way this is going so let's open things up to the audience for some questions.
Rory Stear: My personal belief is that businesses and communities in which they operate are inextricably linked and therefore the relationship goes beyond merely measuring success in terms of profitability. That's not to say that profitability is not a extremely important priority - from it all else flows - but there's a whole range of other things that need to be measured. I think CEOs around the world are increasingly realizing there is good for business to be a good director. We're seeing more community people coming onto boards, especially in this country. Robert Friedman: I might add to that, it takes a bit of a struggle to get business aligned with the community to which it's involved and that can come through consumers or investors. Business regardless of its size has its reputation as its greatest asset and if you're a big brand like Nike the last thing you want is a scandal about sweat shop labor to tarnish your brand. Companies can have altruistic motives and the desire to protect their motives, and it doesn't matter to me what side they come from as long as the behaviour changes. But I do agree that the goal here is to get business leaders to see how their business depends on their relationship with the world in which they operate. Audience member: How do we know if a company is doing right socially and ethically? Rick Aubry: There are some companies doing a great job, but we as consumers can't know that because as long as it's just a claim that you make for yourself consumers, understandably, are sceptical of that. It's in the best interest of the companies that are doing it well to have a third party involved. In the U.S. there's a new thing called "for benefit corporations" and the sole purpose of this is to work with entrepreneurs who run great companies that are both profitable and doing good. They have a whole set of standards that are quite transparent and driven at the collective level by 200 to 300 businesses in the U.S. that have sets of environmental, human resources and social responsibility standards. They all have to take this test, so in order to get the big corporation brand you have to allow yourself to be transparent in the same way financial reports are transparent to investors. It's a tough pill to swallow, but many companies are signing up to this. The aim is to have the brand be so valuable that companies will make the trade off to allow people to look at their practices, to look at their supply chains in exchange for a big corporation wide standard on their business. Robert Friedman: I've got to tell you it's difficult to do this; what you look at and what you don't look at. It's a process that needs to be undertaken, but it is difficult and controversial. But it is happening on some commodities like cocoa, there are groups that go around and check on sweatshops. It is a process that's developing for auditing what companies are doing.
Audience member: What support is there for children taken out of bonded labor? Kailash Satyarthi: First of all we should understand the vicious circle between child labor and adult unemployment. In most of the countries we work in we've noticed the growth of child labor is parallel to the growth in adult unemployment. In the case of South Asia, we had a least 80 million children in fulltime jobs and 85 million adults unemployed, and most of these children belong to the families where the adults don't have jobs. Children are preferred as labour because they don't have bargaining power. A country like India that has 60 million children in jobs means there are 60 adults without jobs. Rugmark has a number of rehabilitation programs, transitory rehab measures like access to schools. But school drop out rates in those areas has fallen from 40 percent to around 24 percent. As the children are staying in schools, this means there are more jobs for their parents and then will also get better wages, better working conditions and have what we all want, which is to send their children to school. It is a big myth that children are supplementing their income. Children are given 20 to 25 percent of the legal minimum wage, which is why they are preferred. Closing remarks and thanks to the panel from Michael Holmes and Robert Friedman. [Applause]. |
Robert Friedman: Rory I'd like to start with you, I wondered if you could talk a little bit about the actual practicalities of starting your business and how you got from a for profit business to more of the social mission that you do through the 
And not only that, but the rug export has created more opportunities for the average people; we assume six to seven million jobs were created. Most of these adults are the parents of relations of the children who were bonded in the past. So as well as rescuing those children we have create huge job opportunities to the able bodied adults. 
For example one initiative of Rugmark was when I was on a German TV channel with the viewers were asking me questions. One woman was had bought a new very expensive carpet was so sensitized that she told me she was going to throw her rug away because she didn't want to put her legs on a carpet made by slaves. And she asked a very simple question - and she was old so the urgency was there - but she asked would she in her lifetime be able to buy a carpet that was "clean" of the exploitation of children? And I said, this we can do. 
Ngozi Awa: I'm serious; in some African countries that situation still exists. In South Africa one of the most successful people in construction is a woman. South Africa is a different kettle of fish. Women, because of the apartheid system have learnt to be self-sustaining, so the situation is not so accurate here. 
Organisations like Home Depot has badged 3,000 products as environmentally friendly, GE has been going for the greening of their operation. M&S in the UK has gone very solidly towards fair trade and organic. They're doing because that's what consumers want. These are huge examples but rare examples. 
Michael Holmes: There's one thing that I've heard you all mention and that's government. Are governments hampering efforts of groups not just like yours but others to be more corporately responsible? 
Audience member: What sort of leadership changes at the board level do we need to get the groundswell to move towards more socially responsible companies?
Kailash Satyarthi: If you can go for a multi-stakeholder approach in monitoring your own code of conduct that will be much more transparent and enhance your reputation. Representatives from different stakeholders, investors, trade union representatives, and civil society and consumer groups, even the media can create a monitoring process and give you much more reputation. 
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