Re-examining CSR

Being in the business of medicine, pharmacos should be seen as saviours but the reality is different. Some of them do have Corporate Social Responsibility (CSR) programmes but this is still the exception rather than the norm. Aashruti Kak explores

The term Corporate Social Responsibility (CSR) comprises of three big words; big in terms of either meaning or letters. But what does it really imply? "CSR or corporate citizenship forms the backbone of a company. A company must tirelessly aspire to be a reasonable and conscientious corporate citizen, based on trust, transparency and accountability. This also involves societal engagement beyond products and profitability," says Ranjit Shahani, Vice Chairman and Managing Director, Novartis India. Keeping the above in mind, pharmacos need to contribute towards society by involving themselves in activities in the field of healthcare, education, and other environmental and civic initiatives, and should try and delineate these activities from business.

So, what exactly is the image of the pharma industry in India in the eyes of society as far as CSR is concerned? "We believe that the pharma industry needs to be recognised for its positive contribution to the healthcare of the nation," says Shahani. Vinay Somani, Trustee, Karmayog, puts forth a different point of view, "Society in general is relatively unaware of issues and facts about the pharma industry, and so, has no image or view of the industry, let alone be a positive one. People are more likely to have an image of an individual company, rather than of the industry as a whole." He goes on to say," The pharma industry do not have a positive image amongst those who are aware of issues and facts concerning it, partly because of lack of transparency from the industry itself."

Erroneous zones

"The dilemma of pharma companies is to balance increased commitment to CSR in developing countries and elsewhere against the demands of investor and financial markets to generate sufficient financial returns on extensive investments in R&D" - Ranjit Shahani Vice Chairman and Managing Director Novartis India

One of the few defects in pharma industry's drive to facilitate easier access to medicines to the underprivileged sections of the society are that inspite of penetrating potentially huge and emerging markets and making profits, the citizens of those very countries are still deprived of their fundamental right to health ie. relevant and affordable medicines. This is mainly because companies view certain approaches that tackle access to medicines issue as a mere reputational problem. This has resulted in erratic and unplanned strategies that have further failed to deliver sustainable solutions. What the industry must do is inculcate fresh approaches to keep easier access to medicines at the forefront., In the process, this should involve different business strategies and policies in order to become more 'responsible'. After all, the ultimate role of the pharma industry is to provide medicines, and affordable ones at that.

Although many companies have improved and adopted various policies to encourage access of medicines in diseases like HIV and AIDS, tuberculosis and malaria, the scope of reaching out to the masses is still limited as there are millions of people who are yet to get their fair share of medicines for current, new and recurring old diseases. It is definite that it will take a while for pharmacos to infuse initiatives related to patent and pricing issues, R&D, public-private partnerships (PPPs) and the correct use of medicines into their policies wholly, but the biggest fear is that it might be too late, given that there is always a chance for a pandemic to strike anytime.

There have been reports by NGOs, namely, Karmayog (in India) and Oxfam International, that indicate that pharmacos have ‘failed in their social duties’ and have stated that pharma MNCs need to be ‘more socially responsible’ with regards to their pricing practices, R&D priorities and IPR management in developing nations.

The November 2007 report of Oxfam International—Investing for life—stated that the current approaches of the industry do not address the problem sufficiently. The report listed out four major shortcomings of the industry—

The industry is facing failure to implement systematic and transparent tiered-pricing mechanisms for medicines of therapeutic value to poor people in developing countries, where prices are set according to a standard formula, which reflects ability to pay and the price of generic versions where they exist.

There is lack of R&D to address the dearth of dedicated products for diseases that predominantly affect poor people in developing countries. This includes drug formulations that are applicable and usable in the developing world. Between 1999 and 2004, there were only three new drugs for neglected diseases out of 163 new chemical entities (NCEs).

Persistent inflexibility on intellectual property protection (IPR), and in some cases, active lobbying for stricter patent rules and legal challenges to governments' use of TRIPS public-health safeguards have prevented poor people from accessing inexpensive generic versions of essential medicines.

The industry focuses too much on donations, which by their nature are unpredictable and have been found to cause chaos in the market for low-cost medicines as well as undermining generic competition.

Hence, the report states that hiking up prices, aggressively defending patents and prolonging existing ones through 'ever-greening' rather than investing in R&D of new medicines have undermined needs for lower prices, flexible approaches to patenting, and R&D investment into diseases relevant to the developing world.

Karmayog, in its recent CSR rating of 30 pharmacos (as a part of a large scale rating of 500 companies over various sectors), rated 32 pharmacos on a scale of one to five on the basis of the nature of their products and services provided, the needs of society, impact of the usage of various products and services by the companies along with environmental sensitivity, resource allocation for CSR, and the reach of CSR activities (for employees, within the vicinity and for society as a whole). According to the NGO, a company must spend an amount equivalent to at least 0.2 percent of its sales for CSR activities. Such an amount provides an idea of the magnitude of CSR that can be done by that company.

As per the ratings (shown in the table), 38 percent of pharmacos had CSR within the vicinity; 31 percent had no CSR activities; 28 percent had CSR within the vicinity and for society at large; and only three percent had CSR for employees. Dr Reddy's Laboratories (DRL) and Lupin were the only drug companies that have been visibly and effectively working on the CSR front; and Aventis Pharma was the only company that had CSR programmes for its employees.

Contributing enough?

"Explicitly, our CSR programmes are independent to divisions and operational areas, and we are in the process of integrating our policy as part of our new initiatives to build a single brand" - Dr Swati Piramal Director-Strategic Alliances and Communications Piramal Healthcare

"Corporate citizenship is the right thing to do and essential to maintaining our license to operate, innovate and grow," says Shahani. "Through responsible business, we can create value for society (all patients, including those who cannot afford treatment) by resting our commitment on four pillars—patients, business conduct, people and communities and environmental care," he adds. Ensuring that CSR is an integral part of the way business is done through processes and governance is also very important.

Unfortunately, a majority of pharmacos in India do not have formal written CSR policies or a certified management system for CSR. Also there is hardly any resource commitment in most companies, as CSR is undertaken in the absence of systematic approaches. Hence, the deployment and monitoring of investments made in CSR comes under the shadow of uncertainty.

However, there are some that do follow a procedure when it comes to deploying and monitoring CSR. Shahani explains the process in Novartis, "In India, there is a Corporate Citizenship Committee at the corporate level with senior managers at the helm. The company has constituted a corporate citizenship team comprising senior executives and headed by the Vice Chairman and Managing Director. The core team comprises of Head Corporate Affairs, Corporate Communications and Company Secretary, Head Investor Relations and General Counsel, with representation from the various businesses. The team meets at intervals to discuss issues related to corporate citizenship and are responsible for driving it across the organisation. An annual report is sent to the parent company and an assurance audit is conducted at intervals."

Coordinators are appointed for Novartis Community Partnership Week and a consolidated report is submitted to headquarters. The in-house magazine, Novartis News, reports on the various projects the company has worked with or intends to work with. Novartis News goes out to all employees across India. Corporate Citizenship initiatives have also been covered in the Novartis India Annual Report that goes out to around 52,000 shareholders and key opinion leaders. The company's internal audit system also includes audits of the CSR program and performance including the system for analysing relevant data.

The company also has an audit assurance process conducted by PriceWaterhouseCoopers.

Shahani shares the values of the company, "Novartis believes in getting involved in social activities where it has the ability to make a difference. This is different from merely 'donating money'. Its programs are therefore in the areas of healthcare, education and environment. Sponsorship and patronage are seen as being distinct from CSR activities, in the sense that they are usually ad-hoc while CSR activities are conducted on a long term sustainable basis. As a 'caring and curing company', CSR in Novartis has moved from ‘want to do’ to ‘need to do’.

In India, Novartis gives Glivec free of charge to more than 8,800 patients who need the drug, and has been involved in several other social responsibility initiatives. The company also has been widely recognised by independent organisations for its CSR efforts and has received a volley of awards as acknowledgement of its social responsibility. As one of the first signatories to the Global Compact, Novartis has taken steps for generating awareness among its business partners on issues such as abolition of child labour, fair living wages and is in the process of devising steps to ensure implementation and compliance. Among its social projects are providing education to the underprivileged and rehabilitation of leprosy patients so that they are back to being productive members who are integrated into society.

Similarly, at Piramal Healthcare social responsibility is integrated into the mission of its businesses. "Currently, investments made in CSR activities, are monitored internally through the Chairman's office and the leadership of individual businesses. As we are working towards an integrated CSR policy, we will bring oversight of CSR to a central team," says Dr Swati Piramal, Director-Strategic Alliances and Communications, Piramal Healthcare. She continues, "Explicitly, our CSR programmes are independent to divisions and operational areas, and we are in the process of integrating our policy as part of our new initiatives to build a single brand." Piramal Healthcare's CSR activities are decentralised and determined by divisions. In addition, over the course of the last two years, the company has developed centralised initiatives through the Piramal Foundation and has partnered with several NGOs, government agencies and educational institutions on initiatives ranging from grassroots development, rural healthcare, education, and the Piramal Prize for Innovations that Democratise Healthcare.

CSR of employees, by employees

CSR can also be and is being implemented internally in organisations keeping the employees in mind. For instance, Shahani says that Novartis provides its employees with the safest possible workplace, and promotes their health and well-being. The company has also put in place a health policy for the management of HIV/AIDS, tuberculosis and malaria that covers employees and their immediate family members. Environment sustainability is also an integral part of the company's strategy-it protects the environment by operating to the highest standards.

Involvement of employees in executing various CSR policies is very crucial. This helps in inculcating pride in employees for the company, and making them more sensitised participants while contributing towards the CSR objectives of the company. This is a far more effective, and long-lasting method of practising CSR as compared to contributions from employee pay-roll and volunteerism, which is often not voluntary and is usually also temporary. For instance, Piramal Healthcare has started both employee volunteer programmes and payroll giving programmes in partnership with iVolunteer and the Give Foundation.

Likewise, at Novartis every employee is involved at some level in the furtherance of corporate citizenship. Also, the Board has adopted the Corporate Citizenship/Code of Conduct policy with a focus on 'the triple bottom line'. "Training of employees in corporate citizenship is an ongoing exercise. While new recruits undergo an initial training, there are regular refresher programs and online e-training for corporate citizenship and code of conduct carried out at global and local levels. Tracking of the training process is done and certificates are issued on completion of the e-training. Posters, direct mailers and articles in the in-house magazine are other avenues that are used to raise awareness levels," says Shahani.

He says that globally, Novartis dedicates one day every year to community work where employees are encouraged to go out on company time and work for the community. "In India, we encourage people to go beyond this one day. This has resulted in these activities being spread over a period of seven to ten days. Around ten to 15 percent of our employees participate in this activity. Each year we encourage employees to go out and work in the community during Novartis Community Partnership Week and we have around 400 employees doing so. We also have employees volunteering on a weekly basis as part of the Akanksha mentor program," he adds. Akanksha is an NGO that works with underprivileged children. Commenting on the resource allocated by the company to CSR, Shahani says, "We do not have a fixed percentage of profits allocated for this purpose. Our contribution varies depending on needs at any given point of time."

Swimming upstream

" The challenge before the pharma companies is a difficult one. The dilemma is to balance increased commitment to CSR in developing countries and elsewhere against the demands of investor and financial markets to generate sufficient financial returns on extensive investments in R&D," says Shahani. "We need all stakeholders to come together to solve the complex problem of access where medicine prices and intellectual property are only 'two pieces of the puzzle'. A range of underlying and related issues with respect to health infrastructure, inequitable or otherwise, are inefficient health systems, under funding on healthcare, poverty etc," he says. Governments too have a principal role to play in this as do public-private partnerships. Tiered pricing, donation programmes and CSR activities can alleviate the problem to some extent, but are not a sustainable solution, he adds.

The private sector has great societal obligations, hence, making products relevant to the market at affordable prices, having a more flexible and ethical distribution and marketing system, and inculcating all of the above in their business strategies in the emerging markets that they penetrate, would be treated as part of CSR for those companies. Its not that the pharmacos are not working towards these goals; pharma MNCs are doing research in tuberculosis, malaria, sleeping sickness, shistosomiasis, kala azar, dengue fever and river blindness to name some of the developing country diseases they are focusing on, says Shahani. In addition to these efforts, pharma MNCs have set up institutes dedicated to tropical research diseases. AstraZeneca, for instance, set up the Bangalore Research Institute for Research into drug-resistant tuberculosis, Eli Lilly has a not-for-profit public private partnership for tuberculosis early phase drug discovery in Seattle, USA; Novartis has the Novartis Institute for Tropical Diseases in Singapore which is dedicated to discovering novel therapies and preventive treatments for major tropical diseases, which will be available at no profit to poor patients in endemic developing countries; and Glaxo has the Diseases of the Developing World Discovery Centre in Tres Cantos, Spain for the discovery and development of new drugs for neglected diseases with a special focus on malaria and TB.

Meeting expectations

Rising markets are rapidly being recognised as a magic solution for the industry's deteriorating growth. As the potential in these markets gets marked down (for lower R&D costs, clinical trials and cost-effective manufacturing), the industry has to come up with a completely different approach that will take into consideration enormous income disparities, consequence of soaring prices on the already vulnerable and insecure population, and need for relevant medicines.

Is it justified to say that the sector is living up to these expectations? Society, in general, has low expectations for any sector or company regarding CSR. This is beginning to change, with greater awareness about CSR spreading across society. "The pharma sector can be considered to be a 'high impact' sector, where processes, products and their usage have wide-ranging, deep, permanent impacts on society and people's lives; in this context, for a high-impact sector, the expectations of CSR would also be correspondingly high," says Somani. "And at the moment, the pharma sector does not appear to be living up to these expectations, on the basis of publicly released and available data about pharma companies," he adds.

Shahani opines, "We need to look at the larger picture of healthcare, including health-care infrastructure, rather than look at just the pharma industry in isolation. Govern-ment needs to look at public-private partnerships more closely, as well as increase healthcare spend. Today, it is possible to get a branded soft drink in a remote village as well as have cell phone connectivity, but this is not the case for access to basic healthcare, which gets increasingly difficult as you go out of urban and semi-urban areas in the country." To meet the challenge of access to medicines, companies need to address society's expectations, without which, they cannot exercise the various approaches that they intend to practice.

aashruti.kak@expressindia.com