Pictured: Downtown Beirut at Night
Long plagued by a weak central government and subject to sporadic bouts of political instability, it is no surprise that Lebanon was named one of the world’s worst places to start a business in the Doing Business 2016 report. The report, published annually by the World Bank, has charted a precipitous drop in Lebanon’s rankings in both the ease of doing business and the ease of starting a business since 2009. The trend is alarming to Lebanese policymakers and entrepreneurs alike, especially as the nation has sought to become an attractive place for foreign direct investment.
At the same time, Lebanon lags significantly behind its neighbors in terms of corruption perception. According to Transparency International’s 2015 Corruption Perceptions Index, Lebanon ranked among the worst in the Middle East and North Africa, beating out only Syria, Iraq, and Yemen, countries currently engulfed in violent internal strife. Lebanon’s ineffectual central government remains unlikely to address these significant problems at this time, and so it is increasingly important to look for more creative, non-traditional approaches to business reform. As a result, many in Lebanon’s business community have turned their attention to an alternative for reform: establishing a culture of Corporate Social Responsibility (CSR) to make the country a more attractive destination for investment and innovation.
Using CSR as a mode of reform is hardly a new idea. CSR, which describes a set of socially beneficial practices that businesses embark on as a form of “self-regulation,” developed in the United States in the 1960s and 70s, in part as a response to a sharp decline in the reputation of American businesses following a series of high-profile ethical crises. By factoring the impact of business decisions on all “stakeholders” versus the traditional focus on shareholders, many corporations found that they could do well by doing good, improving their bottom line whilst enhancing community relationships. The positive correlation between CSR behaviors and economic performance has been supported by academic scholarship, including a landmark 1997 study by Sandra Waddock and Samuel Graves of the Boston College Carroll School of Mangement. Yet the most significant finding of the study was the potential for a “corporate virtuous cycle,” whereby strong financials may encourage CSR and vice versa. This result is applicable to the Lebanese context, wherein by taking part in CSR activities, businesses could potentially create a cycle of stronger performance, while simultaneously mitigating significant ethical challenges.
A study by Joëlle Vanhamme and Bas Grobben at the Rotterdam School of Management found that firms who build a long-term reputation for CSR are more likely to overcome ethical crises that affect firm performance. Given that corruption indexes are largely a of measure perceptions, CSR initiatives could help Lebanese businesses overcome the negative ethical connotations clouding investment in the country. By embarking in self-regulation and stakeholder focused business practices, Lebanese businesses could be on the forefront of new age business reform; enhancing their own reputations and encouraging much needed foreign direct investment.
Recognizing the threat the poor business ethics landscape poses to the viability of the Lebanese economy, business leaders have already begun to apply CSR models to reform efforts. Civil organizations, like the Lebanese Transparency Association, have launched projects such as the Lebanon Anti-Bribery Network, which encourages private companies to maintain a standard of ethical conduct by rejecting bribes and other forms of undue influence. In 2009, Khaled Kassar launched CSR Lebanon, a consultancy firm that specializes in developing long-term CSR practices in Lebanon and other Middle Eastern countries. Whereas CSR was largely unknown to the region at the start of the century, some Lebanese companies, like Banque Libano-Française, have even started publishing annual CSR reports, demonstrating an understanding of the value CSR can have to investors. This push for CSR involvement has been accompanied by an increased focus on corporate governance standards, which, if properly developed, have the potential to create real change in Lebanon’s business environment.
Despite these positive developments, however, there is still great concern about the viability of CSR as a tool for reform in Lebanon. In an interview with The Daily Star, CSR Lebanon’s Khaled Kassar expressed that many of the CSR projects in Lebanon are “mostly one-off, piecemeal initiatives,” rather than the kinds of long-term integrations necessary for sustainable reform. In addition, there remains much skepticism about the viability of CSR to be widely adopted in the country. Given the immense political and economic challenges facing Lebanese businesses, it is likely that entrepreneurs will be more concerned with immediate challenges that impact their ability to stay in business. As Khaled Kassar further discussed in his interview, most of CSR Lebanon’s clients are still larger, more internationally focused Gulf businesses, while Lebanese businesses continue to focus on short-term investments.
Yet this short-term focus is precisely what is putting the growth of the Lebanese economy in danger. Attracting significant foreign investment requires a willingness to sacrifice immediate gains for sustainable long-term growth. Despite sporting a highly educated and cosmopolitan society, as well as a vibrant financial sector, Lebanon has thus far failed to capitalize on its potential for growth. Absent economic reforms from Lebanon’s central government, CSR represents a way forward for Lebanese small-to-large businesses alike. By enacting self-regulating policies, ranging from stronger corporate governance standards to increased community involvement, Lebanese businesses have the chance to take reform efforts into their own hands. In doing so, businesses will embrace the mantra of doing well by doing good, not just for themselves, but for the Lebanese economy as a whole.