Corporate partner profits: a cause for NGO concern or celebration?

On Wednesday I was on the panel of an event organised by CARE UK, exploring partnerships between NGOs and companies. The Barclays-Care-Plan initiative, 'Banking on Change' was the kick-start for a wide discussion, in which concerns were raised: might corporates profit (implication unscrupulously) at the expense of their NGO partners?

If I was a development-focused NGO, I should want my corporate partner to profit! Or at least derive real commercial market gains. If they don't, I should be concerned: they are unlikely to invest in sustaining and scaling the initiative. After all, isn't this the logic for a development partner to work with companies on inclusive business? The business model might not be the most ideal for reaching the poorest of the poor, but once a business drives it forward for commercial return, it is no longer dependent on budgets of NGOs, donors or governements year after year, and can 'take-off'? So long as the business model is inherently pro-poor, then let the partner profit and invest.

This position is an anathema to some, and I can see why. Conventionally NGO-corporate partnerships have been for implementing Corporate Social Responsibility or Community Investment. Eye clinics, water pumps, youth training...are all ways for the company to 'give back'. Aside from the good branding and reputation they get, we'd all feel a bit queasy if they made a profit from their social donations.

So the conundrum: why in one case do I feel queasy if companies profit, and in the other concerned if they don't?

I think we need to look at a simplified typology of NGO-corporate partnership.

1. Originally we had CSR partnerships: NGOs helped in delivery of CSR, companies supported NGO charitable work. Clinics get run, water pumped, orphans cared for.

In evolving models, increasingly companies are contributing their core competencies and assets, not just money. DHL provides logistical suport for disaster relief. Lower off-take from pre-tax surplus for the company, but high value for the NGO of otherwise-unaffordable skills or assets. For the company, this can be great for staff development, loyalty, retention, and perhaps catalysing ideas for the core business. So it is relevant, but it is not done as part of core business for a financial return.

2. Today we have NGO corporate partnerships within 'inclusive business' - a business model that combines commercial and social return. It often involves new skills for the company and needs networks that engage the poor ('base of pyramid"), so partnerships with NGOs make an obvious choice. They help the company to deliver the business model. Or in some cases, they co-invest, pooling assets of the NGO and company in a start-up. Commercial drivers will help drive the growth of the business - so this is the type of example I have in mind when I celebrate profit.

3. Over the last decade we have seen the emergence of alliances that involve companies, NGOs and public sector players, northern and southern, tackling policy issues and public goods. The Global Alliance for Vaccines and Immunisation is one leading example. Here, companies are not directly getting business, but contributing to development of a sector, combining support for innovation with a level-playing field.

The typology seems to make it clear: type 1 should not be for profit, only for good reputation or indirect returns. Type 2 must be for profit or business growth, if it is too succeed. Type 3 has indirect commercial returns.

Reality is not so simple, as some initiatives are in transition from 1 to 2. The Banking on Change Initiative seems to be one of those interesting examples that starts off in the modern version of the first category: the Community Investment arm of Barclays helps the bank to offer services to the unbanked in Africa. But is ultimately heading - ideally - into the second. Some of these unbanked are opening bank accounts, and Barclays may learn a business model that works with this segment.

The dividing line between the two approaches is not clear, but we need to be clear-headed about it. When the idea is inclusive business not social investment, logic should guide an NGO partner:

1. is the business model inclusive? Does it meet needs of low-income people for opportunities, goods or services? If not, leave it. If so, consider partnership.

2. If the business is inclusive, success will give the NGO the development impact it wants, and the business the commercial return it needs. Success requires the other partner to achieve their aim.

3. Weigh up the costs and benefits. The benefits of the inclusive business will need to be balanced against the direct costs - mainly of all that effort. There are also genuine concerns about knock-on affects, constricting how the NGO can tackle campaigns, or lightening the scrutiny of bad business practice. As the CEO of CARE made clear, there are plenty of business proposals that they turn away, because they simply don't fit their criteria.

For the business too, there will be costs and benefits to weigh up. A major cost is the the transaction cost, which is not just a cultural gap but may translates into slower time to market and break-even. On the one hand, business should bear in mind that it may be the business idea that requires patience, and not the fault of the NGO that engaging with the BoP simply does take time. Chiefs, funerals, seasons can't be ignored. On the other hand, NGOs should bear in mind that fear of that 'profit' word can be the result of cloudy thinking, and can make the cultural gap even larger.

Further information:

BIF projects that include a strong partnership between an NGO and a company include RSP Newco (Bangladesh), and AfriNut (Malawi), Microventures (Malawi) and Eras (Bangladesh)

Information on Banking on Change in on the CARE website here.

Guides to partnership are in the partnership category of our Resource Gateway.