Socially-Responsible Real Estate Development (Scenario Five) :Massachusetts Institute of Technology

Massachusetts Institute of Technology

Course: STL.162x Socially-Responsible Real Estate Development: Learning to Use Impact Assessment Tools Effectively

Instructor: Professor Larry Susskind, Ford Professor of Urban and Environmental Planning at the Massachusetts Institute of Technology

Through the STL Lab, this course was taken simultaneously in China under the direction of Professor Shifu Wang, Head of the Department of Urban Planning at South China University of Technology in Guangzhou.

Total Number of Students who took this course: 1,078

Student: Alexander Ayertey Odonkor

*SCENARIO

Your development company has pulled together several international investors to build a gated community on the coast. The plans you have in hand show a commitment to clean energy and “green” infrastructure. You have met with the top elected officials in the provincial government and are assured that, for the most part, they favor the project you have in mind. Some of their staff, however, seem less enthusiastic. For the past six months, they have raised question after question – sending you back to the drawing board repeatedly. Now you are beginning to wonder whether you have missed some of the signals they have been trying to send. Are these people looking for bribes of some kind? Your company has a strict policy against paying bribes, even though that has lost you some important projects in various parts of the world.

Some of your senior staff are talking about offering compensation for the environmental and social impacts you know your project will have, even after you have done everything possible to mitigate the worst effects. What’s the difference between paying compensation and offering a bribe? Please spell out (1) whether you agree with the company’s “no bribes” policy and why; (2) what you see as the key difference between bribes and payment of compensation for social and environmental impacts that cannot be avoided (and when and how to determine the amount of compensation); and (3) the process by which socially-responsible developers can work to create value and how creating value for the community (by altering the design of your project) is different from either bribes or compensation.

My Response

Spell out whether you agree with the company’s “no bribes” policy and why?

I staunchly agree with the company’s no-bribes policy. This is because the no-bribes policy will allot the company the opportunity to form a cordial sustainable long term relationship with all relevant stakeholders of the real estate development. This is possible mainly as a result of a transparent negotiation. Transparency enhances trust and legitimacy. It is no doubt that the company can loose some projects for not giving bribes in some cases but in the long term, a no-bribes policy will give the company a good reputation which will help in building a strong brand for the company. The giving of brides by a real estate developer defeats the whole purpose of being a socially responsible real estate developer.

 Spell out what you see as the key difference between bribes and payment of compensation for social and environmental impacts that cannot be avoided (and when and how to determine the amount of compensation)

There are a couple of key differences between bribes and the payment of compensation for social and environmental impacts. One striking difference between bribes and the payment of compensation for social and environmental impacts is transparency. Brides are considered to be illegal so it is done in secrecy. Negotiations involving bribes are not transparent but the payment of compensation is transparent. Assessors and technical experts give a detailed account of the adverse effects of the real estate development on the social and environmental community. This assessment precedes the payment of compensation.

Explain when a developer should be willing to pay compensation and how the appropriate amount should be determined;

A developer should be willing to pay compensation when the adverse effects of the real estate development on the social and environmental community cannot be mitigated. A classic example is when a real estate development will dislocate a group of people who settle on the land. If the design of the project cannot be altered in such a way that provisions will be created for this group of people to continue settling on the land then the developer will have to pay compensation.

The appropriate amount will be determined by assessors and technical experts in conjunction with representatives of all relevant sub-groups in a problem-solving process in such a way that the interest of all stakeholders will be fairly represented. This arrangement will include a facilitator who will ensure that all interests of stakeholders are fairly represented.

Spell out the process by which socially-responsible developers can work to create value and how creating value for the community (by altering the design of your project) is different from either bribes or compensation.

Socially-responsible developers can work to create value for the community by carrying out social impact assessment and environmental impact assessment in conjunction with representatives of all relevant stakeholders in a problem-solving process in a way that will have an impact on the final decision. The key to creating value for the community is the ability of the developer to understand stakeholder interest and be willing to find ways to meet these interests.

The creation of value is different from bribes and compensation. The creation of value fosters trust between the developer and all relevant stakeholders and this is because the creation of value is carried out in a transparent manner. The creation of value unlike bribes and payment of compensation enhances the developers reputation, saves money, increases public support for the project and promotes a sustainable long-term relationship between the developer and all relevant stakeholders.