Nonprofit muscle: buoyed by billions of dollars in new funding, NGOs are increasingly on CEO radar screens. Are they new pests or constructive partners?

Chief Executive, The, Jan-Feb, 2005 by Bill Birchard

When the world's biggest cement maker, Paris-based Lafarge, wanted advice on how to improve its environmental record, it turned to an unlikely source: WWF International. Lafarge agreed at its own initiative in 2002 and 2003 to set goals and timelines negotiated with WWF, one of the world's strongest environmental watchdog groups, formerly known as the World Wide Fund for Nature. The group now gauges Lafarge's progress on measures such as the amount of waste the company generates, how much it recycles, how much alternative fuel it uses, and how much it cuts back on C[O.sub.2] emissions.

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Is this kind of partnership between a multinational corporation and a major watchdog group a harbinger of the future? It is if Claude Martin, chief executive of WWF, has his way. "I'm a very strong believer that you only have a relationship if you have targets that are measurable that you can pursue jointly," he says. In the case of WWF's partnership with Lafarge, the company is indeed delivering. For example, it is more than halfway to its C[O.sub.2]-reduction target for 2010.

Martin, a biologist who leads an organization of 3,800 employees in 40 countries, based in Gland, Switzerland, has big ambitions. In discussions with Lafarge Chairman Bertrand Collomb, he insisted on a goal of "sustainable development," or promoting economic performance free of long-term environmental, labor, human rights and other social harm. Martin figures that holding Lafarge's feet to the fire will give him leverage with other big companies. "Once you go with the frontrunners, you have a chance to influence the sector at large," he says, adding that his group's current targets are the building-materials and oil and gas industries.

The insinuation of WWF into Lafarge's management and control systems highlights a global trend. Traditionally, advocacy groups largely made noise and blackened reputations in their efforts to spur change. Now, they employ an array of strategies, and increasingly act as insiders, to press chief executives to adopt new agendas. In short, they are ever more in the face of CEOs, at companies as far ranging as Chiquita, Citigroup and Suncor Energy. "Any executive who ignores this phenomenon is in for a fall," says Michael Edwards, director of the governance and civil society unit at the Ford Foundation. "One has to be extremely sophisticated, systematic and strategic" in working with NGOs.

Embrace the Right NGOs

Thanks to the wealth boom of the 1990s and the rise of Internet access, there has been a proliferation of nonprofit groups, or nongovernmental organizations, as they're known internationally. In the United States alone, the number of registered nonprofit groups grew from 633,391 to 800,972 between 1999 and 2004, according to IRS figures compiled by the Urban Institute, an economics and social policy research organization based in Washington. Over the same period, the revenues of NGOs jumped from $906 billion to $1.4 trillion. An indication of the growth in advocacy action can be inferred from the growth of the environmental NGO sector alone: The number of these groups grew from 14,303 to 22,186, with revenues surging from $9.6 billion to $14.3 trillion. Such revenues come not only from donations and grants but also increasingly from fees for services such as those provided by WWF to Lafarge.

As a result, they're harder to ignore, and CEOs have to make the decision on whether to fight a losing battle against a globally networked, Internet-savvy alliance of foes or try to embrace the right nonprofits. Rio Tinto, the London-based mining giant with $9.2 billion in sales, has 15 partnerships with NGOs, including one with WWF. The company routinely solicits input from NGOs on key decisions. At its U.S. Borax unit, which runs California's largest open-pit mine, CEO Gary Goldberg listened while NGOs such as the Nature Conservancy and Pew Charitable Trusts reviewed its environmental goals, measures and actions. "Our commitment to constructive engagement, globally and locally, runs throughout the business," says Rio Tinto Chairman Paul Skinner.

To be sure, NGOs still engage in plenty of old-fashioned rabble-rousing. In December, San Francisco-based Rainforest Action Network taunted Ford Motor chief William Ford in a full-page open letter in The New York Times. "Gas guzzling is un-American," shouted the headline. Signed by Michael Brune, the group's executive director, the letter decried Ford's "dead last" ranking among automakers in overall fuel efficiency. Members of environmental groups are peeved by Ford's failure to meet a promise made in 2000 to raise the fuel efficiency of SUVs by 25 percent over five years.

And some NGOs are clearly out to "get" targeted companies, such as Wal-Mart. Some 20 groups formed the Business Ethics Network (also based in San Francisco) in June 2003. The group, headed by Michael Marx, a veteran leader of "corporate campaigns," has now grown to more than 40 groups. Marx says the network wants to gang up on a "linchpin" company such as Wal-Mart. The giant retailer galls activists of all stripes for practices that affect everything from environmentally sound procurement and urban sprawl to the treatment of women and human rights on the factory floor of developing-world suppliers.