Tag Archives: risk management

Companies’ Growing Role In Natural Disaster Relief

Multinationals are taking an increasingly prominent relief role in humanitarian disasters, including those in China. The Center for Strategic and International Studies, a Washington think tank, has put the subject under its microscope, finding that corporations have become a central component of the international response to natural disasters. The likes of Coca-Cola and Cisco were bigger contributors to Sichuan earthquake relief than the U.S. government (if not bigger donors than the general public). The Center sees the trend as part of an expanding notion of ‘corporate global citizenship’, though in the case of Chinese disasters, it notes, it may be as much smart local brand building.

The Center dates the trend to the 2004 Indian Ocean tsunami. It excites policymakers, for all the differences in values and organizational cultures that exist between the private and public sectors. Companies bring cash but also a new disaster assistance network through their globalized and local personnel, supply chains and customers–and a desire to protect all three. Policy makers should remain realistic in their expectations, however. Relief for both domestic and international disasters accounts for less than 3% of all corporate donations, the Center notes.

Each natural disaster is unique in its own way. Beijing had the resources to deal with the 2008 Sichuan earthquake, unlike, say the Haiti government in the wake of the 2010 earthquake there. Yet U.S. corporations still donated an estimated $110 million toward relief of the Sichuan disaster, even if they were seen as “driven by commercial calculation rather than by acute humanitarian concerns”, the Center says. Up to a further $30 million was given via the Red Cross. The U.S. government itself gave just $5 million. The Business Round Table and the U.S.-China Business Council were instrumental in corralling U.S. multinationals to give in Washington’s stead.

Here is a list of the four most generous U.S. corporate donors for the relief of the Sichuan earthquake, one of the five big disasters examined for the Center’s study. The numbers include cash, in-kind donations and employee contributions.

  • Cisco: >$45 million
  • Coca-Cola: $15.6 million
  • Procter & Gamble: $7.6 million
  • Johnson & Johnson: $5 million

Seriously generous numbers.

This is all evolving ad hoc. In the U.S., the Business Civic Leadership Center at the U.S. Chamber of Commerce is emerging as the coordination point between the corporate, governmental and non-governmental organization worlds. UN agencies and the Global Economic Forum (Davos) is tickling forward the global agenda. There is interesting cooperation going on between companies and disaster relief agencies to enable corporate management and organizational skills and technologies to be deployed in the field at the time of disaster and to raise the core capacities of relief agencies over the longer term. As was demonstrated in the U.S. after Hurricane Katrina, a retailer like Wal-Mart is much more practiced than government disaster management agencies in distributing large volumes of basic supplies to a lot of people quickly. This is all beyond our immediate remit but gone into in some detail in the Center’s report, though the examples are mostly U.S.-centric.

From the ash-gushing Icelandic volcano to the Fukushima nuclear disaster, natural disasters can readily disrupt global supply chains. Disaster risk reduction may not have the feel-good factor of disaster relief for corporate donors, but private-sector engagement in these areas, though still rudimentary, is just as vital. That is not just about social responsibility. It is also, as the report notes, “about economic risk management and the longer-term vitality of consumer societies”.

While business may not be in the business of disasters, it decreasingly stands by, if it ever did, when disaster strikes. For multinationals in China, preparation is understanding where a company can be helpful and at what points in the system it can make their offers of assistance. For Chinese companies abroad, it is something to understand that this is becoming yet another dimension of being a multinational.

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Filed under Environment, Politics & Society, Sichuan earthquake

China’s Financial Reform: ‘Making Progress While Maintaining Stability’

Chinese Premier Wen Jiabao (front) attends the National Financial Work Conference in Beijing, Jan. 7, 2012. (Xinhua Photo)

There were no great expectations of the fourth quinquennial national financial work conference that has just ended in Beijing. And it seems to have met them.

These two-day meetings set broad policy objectives for the coming five years. In the past they have provided a blueprint for significant financial-system reform. But with a leadership transition already underway, the start of a new five-year plan and growing nervousness among policymakers and political leaders about the volatile outlook for the global economy and the potential implications for China’s growth, there is no great appetite for much beyond keeping a steady ship.

“Risk-aversion should be the lifeline of our financial work,” said Prime Minister Wen Jiabao, seen in the Xinhua photo above arriving for the start of meeting with the men and woman in whose hands so much rests. Wen also said that there would be greater supervision of the banks, which, he said needed to improve their governance and risk management.

Risk control and prudent macroeconomic management were the order of the day, as they were at last month’s annual economic work meeting. “Making progress while maintaining stability,” is the mantra. The emphasis is currently on the stability.

More detail about the financial work meeting will likely drip out over the coming days. The post-meeting statement dealt in generalities, but two leading topics of discussion were the currency and interest rates. Moves towards more market oriented interest rate mechanisms are necessary if China is to become more efficient at capital allocation, as it needs to be as its economy develops from its invest and export model of the past three decades. But steps have been tentative in the face of some vested interests who have thrived on cheap and ready bank loans. We expect the equally tentative steps to develop bond markets to be given priority over interest rate liberalization, with provincial and local governments being given more scope to sell bonds to firm up their finances. However, when it comes to developing a corporate bond market, don’t underestimate the political task in getting the big state owned enterprises to be supportive of a new source of credit that will be more demanding of their performance.

The internationalization of the yuan is also likely to continue at a measured pace, while the exchange rate against the dollar won’t be allowed to drift much higher. Policymakers feel that with the trade surplus shrinking the currency is at the right sort of level. It has risen by a third since the peg with the U.S. dollar was first broken seven years ago. Wen said China “will steadily proceed with efforts to make the renminbi convertible under capital account to improve its management of the foreign-exchange reserves”–though that is pretty much boilerplate.

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