Business Respect - CSR Dispatches No 101 - 13 Aug 2006

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An email newsletter with news and discussion focusing on corporate social responsibility globally, looking at the companies in the news and the emerging issues. Linked to the website at http://www.mallenbaker.net and produced every two weeks.

In this issue, we consider the business case for CSR.

In the news:

Feature articles on the internet:

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Topics:

Want to read a hyperlinked version of this issue? You can find one on the website at http://www.mallenbaker.net/csr/nl/101.html.

Copyright 2006 Mallen Baker. All rights reserved. For information on how to subscribe, go to http://www.mallenbaker.net/csr/nl/subscribe.html

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Welcome

I was asked, not for the first time, during the last fortnight whether or not I had a succinct 'business case for CSR'. I realised that this was a broad topic that I'd never really dealt with. Of course, the easiest thing in the world would be to produce a bullet point list of lots of different claimed benefits for some generic thing called CSR - but the real picture just isn't that straightforward. The article in this edition explores this further.

Thanks to all those that sent messages of congratulations following the 100th issue of Business Respect last time. It's great to know that people have found these productions of use and of interest over what has now become quite a long timescale.

I'm not such a great fan of the person or persons apparently based in Korea who decided that it would be a great wheeze to sign up between 4 - 8 fictional subscribers a day. All of these were spotted, and immediately removed, but even so it rather underlined the risks inherent in having a single sign-up system for what is rigorously intended to be an opt-in only newsletter.

So the subscription system for Business Respect has now moved to a two-stage sign up process. Initial interest will result in an email being sent to the email address given, which then gives instructions on how to complete the registration process. The advantages of such a system are obvious, and increasingly now because of abuse double sign-up systems are being seen as the standard for opt-in mailings. The disadvantage is the potential extra barrier to new subscribers, some of whom may not be as confident with such processes. However, having introduced it over a week ago, it seems to be going alright, with the vast majority of people who indicate interest going on to actually subscribe.

As it happens, it seems also to have discouraged further frivolous subscriptions. Onwards and upwards.

I'm rather expecting the barrage of a huge number of 'on holiday' auto-responders in response to this issue. Fair enough, I'm just about to take a couple of weeks myself. Happy holidays to all that are fortunate enough to be relaxing in the next fortnight!

Mallen Baker
mallen@mallenbaker.net

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CSR News 13 Aug 2006

India: Coca-Cola hits back over pesticide residues

Coca-Cola has fought back over the current controversy alleging high levels of pesticide residues in its soft drink products by attacking the standards used for the highly publicised tests.

The company said that the NGO Centre for Science and Development, which released the claims of high residues, was not an accredited laboratory and did not operate to fixed standards. The company's products, it said, had been tested against stringent EU standards which had found no correlation for the allegations of pesticide residues.

Both Coca-Cola and Pepsi have been facing a strong backlash in the wake of the attacks. Recently five Indian states placed partial bans on the sale of the products, with Kerala in addition opting for a more wide ranging ban.

China: Wal-Mart agrees to unions at all its stores

Wal-Mart has said that it will work with the All-China Federation of Trade Unions on how its 28,000 staff across its Chinese stores will be represented by unions.

The company's statement came as workers at a number of stores had chosen to set up union branches. It said that it aimed to establish grassroots unions within each store throughout China.

Wal-Mart has said that it is not opposed to unionisation, although its many critics highlight the very low level of unionisation at its stores in other parts of the world.

The Chinese government has said that it expects foreign companies to accept unions in China. Currently it is estimated that around 25% do.

China: Baidu faces scandal over click fraud

Chinese search engine Baidu, Google's biggest home grown competitor in China, has been accused of generating revenue through generating fraudulent traffic for advertisers.

Baidu operates a charging regime whereby advertisers pay revenue to the company according to the amount of traffic generated to their site through the search engine. Now a number of advertisers, according to the CSR Asia website led by a cancer treatment clinic, are arguing that around 70 percent of the traffic they pay for is generated from one website, apparently owned by Baidu itself.

Thailand: GlaxoSmithKline faces protests over patent

Hundreds of Thais laid seige to GlaxoSmithKline's office in Bangkok to protest an application the company has put in for a patent on an AIDS drug that it is feared will raise costs.

The anti-retroviral, Combid, is currently produced in generic form by the Government Pharmaceutical Organisation (GPO). The patent, if granted, would force the GPO to stop producing its version. The GSK branded version sells in Thailand for around six times the price of its generic competitor.

The Thai government is currently treating around 80,000 HIV/AIDS sufferers under its public healthcare plan.

GlaxoSmithKline has said that the country could negotiate for a voluntary licence that would enable it to produce a generic version of the drug.

Australia: Drug companies accused of manipulating trials

A cancer specialist involved in clinical trials has said that pharmaceutical companies are manipulating some of the trials to best serve their commercial interests at the expense of timely safety informaiton.

Professor Stephen Clarke said that key research covering matters of public importance need to be funded by governments rather than leaving it solely to the companies that have too great a conflict of interest.

Professor Clarke said that he had seen instances of companies delaying the publication of data that cast doubt on the effectiveness of their medicine and ensuring that it got less high profile exposure when eventually published. In addition, companies had refused to fund certain tests on the toxicity of the drugs for different patients.

World Bank offers businesses corruption amnesty

The World Bank has announced that companies that have defrauded it in the past can bid on future work if they admit what they have done and promise to abide by the rules in future.

World Bank head Paul Wolfowitz said that the aim of the measure was to prevent and deter corruption in the future. He said: "The private sector as a whole stands to lose when corruption is pervasive and the rule of law is undermined."

Around 330 companies have been barred from working on World Bank projects following investigations over fraud, and corruption has been a widespread problem with projects in certain developing countries such as Cambodia.

EU: Companies may discriminate against smokers

The European Commission has confirmed that anti-discrimination legislation does not cover tobacco smokers who may legitimately be targeted by companies that want to keep their workplaces smoke free.

The statement came in a formal response to a query confirming that an advert that stated "smokers need not apply" would not breach the law following an enquiry by an MEP about a call centre in Ireland that placed such an advert.

According to the Financial Times, the company concerned, Dotcom Directories, said that smokers were anti-social and took too much sick leave.

India: Child labour in homes and hotels banned

The Indian government is to ban the use of children under the age of 14 as domestic servants or at hotels and restaurants from October. The penalty for breaking the law could be a jail term of up to two years.

India is generally held to be the country where child labour is most common, and children working in restaurants and food stalls in particular are a highly visible sign of the problem.

The government said that such children are often made to work for long hours and undertake hazardous activities. Children are already banned from highly hazardous industries, but the ban is generally thought not to be effective. Doubts remain also about the latest measure.

France: Faurecia boss quits over alleged bribery

The head of Faurecia, the car parts manufacturer, has resigned as a criminal investigation begins into allegations of bribery involving Volkswagen and BMW.

Pierre Levi was alleged to have paid bribes to the companies in order to win their business. The company said that his departure whilst the investigation took place was in the best interests of the company.

It is thought that payment of bribes began six years ago, and came to somewhere between 600,000 and 800,000 euros.

India: Pepsi and Coke face further pesticide challenges

A new study of Coca-Cola and Pepsi products in India has claimed that products are showing even greater levels of pesticide contamination than a previous study that created controversy.

The Centre for Science and Environment (CSE) said that its study, based on 57 samples from over 12 states, showed that the drinks contain harmful residues. The group said that the levels in some samples exceeded standards by 140 times for the pesiticide Lindane, a known carcinogen.

The Indian Soft Drink Manufacturers Association condemned the findings and said that 'soft drinks are completely safe'.

US: Merck found not liable for heart problems

A jury has found Merck not liable for causing heart ailments suffered by a man after he had been taking the company's painkiller Vioxx.

The trial determined that the company had not been negligent or concealed information, and that there was no evidence that it had caused Stewart Grossberg's health problems.

Merk faces many thousands of lawsuits involving Vioxx, which it withdrew from the market in 2004 when a study highlighted its potential to increase the risk of heart attacks. The company has won five lawsuits since that time, and has lost three.

China: McDonald's and Mattel dispute reports of poor conditions

McDonald's and Mattel have said they have found no evidence that poor treatment of workers was behind recent violent protests at a Chinese factory of one of their key suppliers.

The companies said they had looked into claims published recently by the NGO China Labor Watch which reported that 1,000 of the factory's workers had rioted because of the failure to pay wages sufficiently for overtime and providing inadequate living accomodation. The factory is owned by Merton Co.

McDonald's said that they believed the incident had been an isolated one involving a recently laid off worker. The company said it would continue to monitor conditions.

China Labor Watch had said that workers at Merton's plants would often work 11 hours a day, 6 days a week, with up to 70 hours a month in overtime. Employees are paid the minimum wage and have to pay a quarter of this to the company for accomodation and meals.

CSR FEATURES from the Internet

Devil or angel? Ethicists debate Wal-Mart - 13 Aug 2006 FROM ajc.com

Management professor Sandra Waddock had a simple question for her peers who teach business ethics and corporate social responsibility.

How many of you avoid shopping at Wal-Mart? More than half of the 50-plus scholars raised their hands. They were gathered for a recent panel discussion on the nation's biggest retailer, part of the annual conference in Atlanta of the Society for Business Ethics.

Read full story

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So what's the business case for corporate social responsibility?

Article by Mallen Baker

One of the most asked questions within the literature on corporate social responsibility is: what is the business case for CSR? The fact that it is so often asked makes it all the more remarkable that it is so often so badly answered.

In truth, there is no business case for CSR. Any more than there is a business case for innovation. Or for marketing. Or for outsourcing. Each of these processes describe a range of possible activities – and any one of those activities may be beneficial or detrimental to the business. It all depends on the judgement in selection of which actions to take, and the skill and energy applied to achieving results. The business case, therefore, is for a proposed course of action, not for some broad general concept of a type of activity.

Take marketing, for instance. Marketing is something that successful businesses often do. And yet there have been disastrous marketing campaigns, destroying brands and businesses at worst. Innovation can be a company’s lifeblood, unless you go somewhere the customers really don’t want to go, as Coca Cola found all those years ago when it created ‘new’ Coke. So why is it that we think that CSR, which covers the nuances of relationship with customers, suppliers, employees, governments, local communities and the environment – not to mention shareholders – can be granted a single business case? It is a sign of the immaturity of the CSR movement that we still believe it is an ‘it’ that you either do or you don’t do, rather than a discipline containing choices, dilemmas, benefits and catastrophes.

First of all, let’s be clear about what we mean by a business case. A business case is no more than a rationale why, in taking a particular course of action, the business might expect to receive more benefits than it bears in cost. The benefits may be non-financial in nature, they may be long term – but they may also not be realised at all. What a business case cannot be is hard and fast proof that taking any particular course of action is guaranteed to achieve the desired results.

Too often, scepticism amongst business managers is fed by flimsy and rhetorical business case arguments. OK, so the majority of the population, if asked in an opinion poll, will say how important they think it is that companies are socially responsible. Any marketing manager worth their salt will know only too well that such sentiments, easy to give to a market researcher, don’t translate into actual awareness of issues nor concrete buying behaviour. The use of such stats is more likely to damage the perception of the advocate of action than to help, since it suggests a lack of clarity in their judgement that may encourage the company to make mistakes.

One of the fundamental mistakes that people make in looking at this area is the belief that in order to create a valid business case, you have to create ‘proof’ that a certain course of action will work. There is no other aspect of managing the business where this high level of proof is expected or demanded. You can take focus group soundings, you can crunch the figures, you can imagine scenarios, but ultimately if any company could ‘prove’ a business case for its main business propositions all companies would be equally successful because they would all be able to guarantee that what they did would work.

That isn’t to say that there’s nothing to be said about the business case. Although any business case needs to be applied to specific proposed courses of action, there are common themes that tend to emerge.

The first of these is about risk management. Within the broadest band of CSR, there are a range of issues that can threaten the value and future health of the company. These range from the publicity around human rights abuses in the supply chain and the consequent interruptions to supply security to environmental incidents such as pollution incidents or explosions leading to regulatory scrutiny, fines and damage to brand reputation. In order for this one to bite, you have to actually believe in the potential for these risks to come about, and that they would do serious damage that would outweigh the benefits of not taking action. This is one of those unfashionable thoughts – actually sometimes there is a more robust business case for taking the risk and being prepared to bear the cost if it goes wrong than there is in taking action. This is an unspoken but not uncommon judgement that businesses take every day and those promoting a business rationale for CSR ignore it at their peril.

The second theme is to do with the identity of the brand. We do now live in a world where in many markets price and quality are increasingly equal, and customers are using other bases for their buying decisions. This isn’t as transparent a process as suggested by those polls about how many people say they think social responsibility is important. The relationship between individuals and brands is more subtle than that. The reasons why one feels favourably towards brands is made up of a number of factors, of which direct experience is the most powerful.

Take Apple, for instance. In common with many other people, I have a great personal affection for the Apple brand, and I am a fan – not a user, not an opportunist consumer, but a fan – of its products. The reasons for this are numerous. The quality of design in Apple products appeals to me. I loved the first Mac I ever used because it was designed as a computer for ordinary people to use. Speaking as someone who has long since graduated to a higher level of geek, I nevertheless have a fundamental belief in tools like this being available for people who are not tecchies. The products work, they are good quality. They are a joy to use. And the Apple brand overall has a great sense of style and flair.

If the recent story about iPods being made in sweatshops had really stuck, it would have been very easy for many of those basic influences to be challenged. If the company had responded that what happened in its suppliers factories was the business of its suppliers, or some other such statement of denial, it would have not been in keeping with some of those aspects of the brand that are not even specifically about social responsibility. How can they be quality products if they’re made in a sweatshop? How can the brand be cool if it is based on disregard for basic standards? How can this be a product for ordinary people if the company doesn’t care about its workers, or the workers of its suppliers? Fortunately, of course, that was not Apple’s response. I don’t require them to be the best in their industry to retain my feelings towards those brand values, but I do need them to do the right thing when faced with a challenge.

So it is with brands. The marketers go to great lengths to establish identities for brands in the public eye. Very few of those brand identities are untainted by stories that run contrary to people’s own values. It may not wipe the sales out the very next day (although that has also been known) but it may still make an impact.

Another common theme is the impact on staff. All companies are working hard to retain the best and most talented staff, even those in positions where they need to lose some overall numbers. There is sufficient evidence that employees are more likely to stay with, and more likely to recommend, their employer if they perceive them to be socially responsible. This can be supported by some of the softer end activities, such as employee volunteering and company charities of the year, but fundamentally it comes down to whether or not they feel proud to work for their company and that starts with the way that the company does business and the way that it treats them – its staff.

Occasionally other business case arguments come into play. There may genuinely be a positive business opportunity in seeking to create a product innovation that helps to solve a social or environmental problem. The consideration of such opportunities needs to be clear sighted – with a shrewd view of how people are rather than the way we would like them to be. For instance, there’s no point inventing the most wonderful zero emissions motor car if it costs twice as much and drives like a dog. People will still want performance equivalent to what they already have – so that has to be part of the design spec. Environmentalists may disdain the ambition to have a car capable of burning the other guy off at the traffic lights – but such factors are key to marketplace success.

For some people, the presence of a business case at all somehow diminishes the action being taken. For them, only if the company is taking the action for genuinely altruistic or community-minded purposes does it ‘count’.

This will not do. Any business taking actions in the name of social responsibility where there is no business case, and therefore potentially to the detriment of its business, is taking a course of action that is fundamentally unsustainable. Once times get tough, the first thing the business will stop doing are the expensive non-essential things. Whereas if it is well understood how acting in line with the values of the business helps to support the value creation of the business then when times get tough it is the last thing you would jettison.

The UK’s Marks & Spencer is an excellent example of this. As a company that went through tough times over the last few years, it identified that the values of the company and the relationship of trust it had with consumers was one of its strongest assets. This was not an asset that could overcome on its own the company’s poor choice of product ranges and lack of fit with its customers needs, but it was certainly not something to be thrown overboard in the name of cost –cutting. Over the last two years, the company has renewed and refreshed itself, improved the style and quality of the product, and the store image, and has brought its values far more into view with its ‘Look behind the label’ advertising campaign. Customers have responded, delighted that they can shop with the company again without having to abandon their taste for style and fashion.

That isn’t to say that there is never a situation where the absence of a business case is not the deciding factor. There is genuinely out there a moral bottom line, and it is well for businesses to be clear where it is. It comes in the cases where none of us as citizens can countenance the consequences of what might happen. If there is a situation where your business may find itself complicit in fundamental abuses of human rights, forget the business case and do the right thing.

Sometimes doing the right thing will prove to have a retrospective business case. When Johnson & Johnson undertook their full and comprehensive product recall of Tylenol they did so because it was, in their view, the right thing to do even though some might think it disproportionate. They bore the immediate cost, but long term reaped the benefit of renewed trust – so important for a company in their line of business. That renewed trust meant recovered market share, in a way that companies that responded to similar circumstances more reluctant, such as Perrier, did not enjoy.

Overall, however, if anyone asks you ‘what’s the business case for CSR’ you should confidently and unapologetically tell them that there isn’t one, and that in any case they’re asking the wrong question. If they can just work out what question they really want to ask, then they’ll find that they get a much more helpful answer.

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In the news from the latest issue

Brazil: Companies launch carbon reporting programme

EU: Finance ministers considering clampdown on 'excessive pay' for executives

Namibia: Companies failing to rise to the challenge of HIV/AIDS

Norway: StatoilHydro pushes Norway to highest ever carbon emissions

South Africa: Lawsuit against companies support for apartheid to progress in US

Anti-corruption enforcement strengthens but problems remain

China: Sino Gold attacked via TV programme

EU: Airlines breaching consumer rules on websites

Germany: Adidas boss criticises Olympics protestors

New Zealand: Major companies criticise climate change bill

Unilever commits to traceable palm oil by 2015

France: Alstom denies bribery investigations

Singapore: Drug companies urged to market responsibly

UK: Shell pulls from huge wind farm project

... more news stories

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Business Respect - most recent edition added on 11th May 2008