Business Respect - CSR Dispatches No 124 - 31 Mar 2008

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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 ask whether the banks can ever treat customers fairly.

In the news:

Feature articles on the internet:

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Topics:

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Welcome

We know that sometimes companies are caught out by the logic of their own business model - ultimately, you are rewarded in business by selling more stuff. The more you sell, the more profit you make. With sustainability issues knocking at the door, we already know that sometimes the imperative to sell more stuff, by making it the fashion to replace things every year for instance, can be problematic.

One of the hardest things to do for firms in such sectors is to work out how the model could be reshaped so you get financially rewarded for the best social outcomes.

This doesn't just happen in relation to the environment - this issue we look at the challenges of the financial sector and the demands that such companies 'treat customers fairly'. It's not about bashing the banks - it's about trying to get a clear-eyed view about the dynamics that tend to make them operate the way they do. You may have views you may want to share!

Mallen Baker
mallen@mallenbaker.net

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CSR News 31 Mar 2008

Germany: Lidl accused on snooping on employees

German retailer Lidl has been accused of excessive surveillance on employees, recording personal details in an operation that has been likened to the Stasi former East German secret police.

The spy system was reported by Stern, which had obtained hundreds of pages of documents arising from footage from mini-video cameras in the chain's stores which had been reportedly introduced to reduce shoplifting.

Records obtained included comments on whether employees seemed capable, what kind of friends they had, and even how often they went to the toilet. Conversations were recorded in minute detail.

Lidl has confirmed that the surveillance had taken place, and said that the aim had been to "establish possible abnormal behaviour". It said that references made to people in the transcripts were not in keeping with how the company believed people should be treated.

Malaysia: Tesco to investigate claims over migrant worker claims

UK retailer Tesco has launched an inquiry into claims that some migrant workers in its Malaysian stores endure poverty level conditions, with 80 hour weeks and low wages.

Migrant workers from Bangladesh alleged that they had paid agents up to 1,500 UK pounds to land a job at one of the stores, and then found themselves paid a pittance, around a tenth of what they had been promised.

The company said in a statement that it took the allegations about its contractors seriously, and was committed to "the highest standards of welfare for workers".

US: Governments seeks to revise criminal tax shelter case against former KPMG partners

The US government has appealed against the verdict of the court that it had violated the rights of former KPMG partners when it allegedly pressurised the company to refrain from paying its former partners' legal fees, as part of an attempt to reinstitute the criminal case against them.

At the time, KPMG had been seeking to avoid indictment in the case, fearing that such an eventuality might lead it to similar catastrophic consequences as befell the ill-fated Arthur Andersen. As a result, the company agreed to co-operate with the government's investigation, and subsequently refused to follow its standard custom and practice of paying legal fees for partners so as to avoid the impression of defending guilty parties.

In a former ruling, a US District Judge ruled pressure from the government on the company over the matter was unconstitutional because it interfered with the defendants' right to representation by a lawyer of their choosing.

Australia: Call for lower taxes to cope with climate change

Australia's business group has called for reductions in company tax rates to enable firms to meet the cost of tackling climate change.

The call, which is contained within the pre-budget submission of the Australian Industry Group, was issued against a broad welcome for the country's ratification of the Kyoto Protocol and intended use of an Emissions Trading Scheme to achieve reductions.

However, the group says that because of Australia's former advantages in cheap coal-fired electricity and its large percentage of agricultural businesses, its companies would be harder hit by emissions trading than many of their international competitors. In a more carbon-constrained world, it added, the greater internal and external distances involved for Australian firms delivering goods and services would become a real competitive barrier.

The AIG called for a reduction in rates of corporation tax from 30 percent to 25 percent to take place from the year when the emissions trading scheme is introduced.

Bangladesh: Government action on CSR in the pipeline

The government of Bangladesh is to undertake an initiative to promote corporate social responsibility, according to its Special Assistant to the Chief Advisory for Industries Mahbub Jamil.

The aim of the policy would be to encourage businesses operating in the country to carry out "welfare activities" with the aim of reversing the perceived trend for Bangladeshi businesses to have little commitment to society. The main target would therefore be to get companies to make an impact on poverty in the country. He said that companies needed to integrate the economic, social and environmental impact of their operations.

The announcement was made at a workshop on the emerging iso 26000 CSR advisory standard, hosted by the British High Commission.

Russia: Police raid offices of BP joint venture

Police have raided the Moscow offices of BP and its joint venture TNK-BP without giving information currently on the reason for the search.

The action has raised fears that the Russian government is seeking to extend its control further over energy assets currently under foreign ownership.

Gazprom has already wrested control of the Sakhalin gas field from Shell, and the Kovykta gas field from BP.

Air New Zealand labelled 'flying sweatshop' over treatment of Chinese staff

Air New Zealand has been attacked for sharp differences in how its staff are paid, with Chinese crew members receiving just over a quarter of the salary of those from New Zealand.

The comments labelling the largely state-owned company as a 'flying sweatshop' were made by the former immigration minister, Tuariki John Delamere. The pay, set by a Chinese company acting as agent for the airline, is below the New Zealand legal minimum wage.

Chinese staff have said that they felt 'duped' when they accepted a job from Air New Zealand only to then find that they would be contracted via a Chinese company on Chinese pay and conditions. Another complained that they were "treated like monkeys".

CSR FEATURES from the Internet

Peru tribe battles oil giant over pollution - 24 Mar 2008 FROM BBC

It is a familiar story. Big business moves into a pristine wilderness and starts destroying the environment and by turn the livelihoods of the indigenous people who live there.

But in a reversal of plot, there are now cases of people living traditional lifestyles who are now invading the territory of the big companies and taking them on at their own game.

Read full story

What microloans miss - 17 Mar 2008 FROM The New Yorker

Making loans and fighting poverty are normally two of the least glamorous pursuits around, but put the two together and you have an economic innovation that has become not just popular but downright chic. The innovation—​microfinance—​involves making small loans to poor entrepreneurs, usually in developing countries. It has been around since the nineteen-seventies, but in the past few years it has seized the imaginations of economists, activists, and bankers alike. The U.N. declared 2005 the International Year of Microcredit, and the microfinance pioneer Muhammad Yunus won the Nobel Peace Prize in 2006, while celebrities like Natalie Portman and companies like Benetton have become fervent microloan advocates. Even ordinary Americans can now get in on the act, at sites like Kiva.org, where you can make a microloan yourself. (Right now, a clothing vender in Cambodia needs seven hundred dollars to “purchase more clothes to sell.”)

Read full story

Recent entries from Mallen's blog

Patagonia's product footprint - 28 Mar 2008

I am a great fan of the feature on Patagonia's website where they map out the headline product journey, and impact, for a number of their key products. Read more

Dealing in responsibility - 19 Mar 2008

I attended the launch of the UK main opposition party's policy proposals on CSR yesterday, a press conference with party leader David Cameron as the star turn. It had at least one interesting idea that bears further consideration (so ahead of most party policy documents), and provided further insight into the wretched state of the political process generally. Read more

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Will banks ever treat customers fairly?

Article by Mallen Baker

I am a great believer of the notion that if you serve customers well, your business will thrive. And yet most people that are customers of the financial services continue to complain about not being well served - and at the same time those providing such services are more profitable than some of the high profile flashpoints for social responsibility debates such as retail - so what's going on?

The question was asked by former UK regulator Don Cruikshank last week at an event at the House of Lords organised by Good Corporation. It reminded me of a conversation I once had with a senior executive of one of the major banks in the UK, who said candidly that a significant proportion of the profits of companies like his depended on people's confusion in the face of excessively complicated financial instruments.

If you mention such factors to staff at financial institutions who are more 'on message' at the time, they will roll their eyes and tell you that it is insulting to label the customer as being stupid or ignorant. It is a great counter-attack, but since I consider myself amongst the confused when it comes to financial services and am reasonably happy that I am neither stupid nor ignorant, it's not one that carries a great deal of weight.

There is something important here about the fundamental nature of business, which is closely related to the fundamental nature of human beings. Are people naturally honest, or not? Some would have you believe that the only thing that keeps people honest is the reasonable expectation of being caught and punished, but this is a calculations which is constantly kept under review. Likewise, others believe that people are fundamentally honest, but can occasionally be tempted.

Well, it is the same question. Most businesses have to serve their customers well because their success or failure in doing so can be immediately and reliably evaluated by the customer. If they want a tin of beans from a supermarket, they can immediately see whether that retailer has the product actually in stock, and they can pretty easily compare the price of that tin of beans with identical products being sold elsewhere. BUT - if you could fleece the customer and knowingly sell products that don't wholly meet their needs, but are immensely profitable, would you do it? And more to the point, if your entire industry succeeds through this process being the norm, could any individual business break ranks to provide best value without undermining their own business model in so doing?

Let's be clear about one thing. The people that run financial institutions are no different in terms of their social responsibility or morality than the leaders of any other kind of business. There is no value to be gained by demonising a business sector and labelling them with derogatory terms. But such leaders will tend to follow the logic of their sector. If you are in retail, transparency is the norm and you'd better accept it. If you're good, you make sure you source sustainably and sell affordably. If you are in tobacco, you have a whole bunch of different issues, but if you're good you invest large amounts in developing reduced harm products and keeping kids away from your products. The first one runs with the logic of your industry, the second counter to it but so obviously a precondition from society that you would have to be pretty foolish to ignore it.

But if you're in financial services? Well, there is a basic starting point which is the provision of services that are easy to understand. Many banks in different countries will offer a basic deposit account to put your money into which is free if you stay in credit. They will also provide a number of outlets for you to withdraw cash for free as well - because when they tried to charge for this they found the customer certainly had a voice on the issue. Beyond that, the logic of the industry rewards complexity. Don Cruikshank suggested that when hit by a controversy around one of the ways they make their money, the banks simply shift their profit generation to another mechanism - as evidenced by the fact that profitable services can be altered or ended in the face of public pressure but the overall profit figure remains largely unaffected.

This creates a real dilemma, because you wonder what the best business case is for any individual company to address the challenges. In the UK, the 'Treating Customers Fairly' initiative talks about acting in customers best interests - and cites the benefits of so doing the usual of 'improved customer loyalty', 'improved trust and confidence', 'increased customer retention' and most hopefully 'improved profitability / shareholder value'.

I wonder whether there might not be elements of wishful thinking here. The 'Loyalty Myths' book published three years ago gave the example of the First National Bank of Chicago which broke all the accepted rules for building customer loyalty when it decided to charge $3 to all customers who insisted on going into branches to carry out transactions rather than doing it remotely. The media carried a flood of critical stories, and competitors jumped in with ads pointing out that they welcomed customers at their branches. In fact, the bank lost a percentage of its customers, but its profits went up by 28 percent. Why? There was indeed a big move to cheaper electronic transactions, and the customers they lost were generally the unprofitable ones they were only to happy to gift to their competitors.

So what about the right of those customers to get a decent service? What about the social role that banking provides and their public duty? Aren't banks often viewed almost as agents of the state, and isn't part of the contract to provide such things? Sure - but that's different to saying that providing such a service has a business case behind it based on profitability.

The one aspect of the business case cited for the 'Treating Customers Fairly' initiative which survives is the threatened big stick - 'reduced risk of regulatory censure'. A perfect, and dramatic illustration seems to be currently unfolding with the recent pre-dawn raids on 700 senior business figures and others in Germany that have been discovered to have secret accounts at Liechtenstein banks, implicitly providing cover for significant tax evasion. The move is feared by the Liechtenstein bankers to be the beginning of the end of their entire banking proposition, and was prompted by a 'whistleblower' leak of names.

So perhaps it becomes the mere risk of exposure that drives caution in this area. As the former management of the Northern Rock bank in the UK discovered, if confidence in the bank by its customers evaporates, so does your business - and in financial services such events come abruptly and often hinged upon information suddenly hitting the public domain and leading to a fast response.

It's a start, but a pretty dismal one. The industry has been making great strides in terms of the environmental impact of its services, it would be good to see leaders tackling the seriously robust questions about their core products in new and innovative ways as well.

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In the news from the latest issue

Nepal: Relatives of killed workers sue US firm KBR for trafficking

US: Proposed Alaskan mine survives people's vote

Merck accused of dressing marketing up as science

Australia: Business lobby group warns over carbon trading

India: Tata Motors threatens pull-out from West Bengal

US: Climate change resolutions making impact on companies

Japan: Details of carbon labeling confirmed

Canada: Wal-Mart has union contract imposed

India: Rising protests against factory building

US: Fraud will cost firms $994bn this year

US: American Airlines accused of safety breaches

Ghana: Call for companies to help clear up electronic waste

US: Disneyland demonstration over hotel worker benefits

Uzbekistan: Major retailers call for end of child labour in cotton

... more news stories

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Business Respect - most recent edition added on 17th August 2008