Business Respect - CSR Dispatches No 137 - 29 Sep 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 consider the current financial crisis in the light of 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/137.html.

Copyright 2008 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

So the world faces total economic collapse, brought about by lack of transparency and accountability, giving a breeding ground for greed and decadence, and the total collapse of trust that has ensued needs to be repaired urgently. But trust is easy to break, hard to repair.

It should be no surprise that the events of the last two weeks are therefore the focus for this edition's lead feature!

On a more trivial note, one of the things I learned from the readers survey was that some readers have been getting the news headlines all breaking into each other as the line breaks that most people get disappear.

Then, in my final days at BITC I got switched from the Groupwise email client to Microsoft Outlook, and I saw this phenomenon for myself. A bit of research, and it appears that Microsoft, in their wisdom, decided that their email client would remove line breaks from text based emails. The reason why most of the text in Business Respect is not affected is because since the beginning I have used a style that had two spaces at the start of most lines - to enhance readability. It turns out that this is just the thing to do to avoid Microsoft from taking away the line breaks.

So this issue, guess what? We put in the extra spaces for the news headings as well. Hopefully that means proper formatting for everyone. Yay.

Not that I will be able to check it myself - since I have now finally officially definitely left BITC. It took about a week of farewell lunches, dinners, drinks and teas - at the end of which colleagues were probably wondering if I was ever actually going to go! And where did I find myself on the first Monday evening the following week? You guessed it, at a BITC launch event.

As with the wider world, everything is different. Everything is the same.

Next week I am on holiday in Dubrovnik, but given the miracles of broadband hopefully the next issue will appear unimpaired. Good luck to all those anxious about what the coming week will bring ...

Mallen Baker
mallen@mallenbaker.net

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CSR News 29 Sep 2008

UK: BAE Systems appoints Deloitte for 'ethical audit'

BAE Systems, the major defence contractor under a cloud from previous allegations of fraud, has appointed Deloitte to carry out an independent review to check that the company's practices meet high ethical standards.

The appointment of an independent auditor was one of the recommendations of the Woolf Commission report, which reviewed how BAE could improve ethical standards in the light of the criticisms.

Deloitte's audit will probably sit alongside the company's corporate social responsibility report.

Japan: Mitsubishi Tanabe settles hepatitis C claims

Mitsubishi Tanabe has settled a six-year-old suit by people who developed hepatitis C after having received tainted blood products from one of the company's predecessors.

The company admitted its responsibility for the hepatitis C outbreak and apologised, promising to work to prevent any future incidents, and to work on the development of a new hepatitis C drug. Hepatitis C can develop into cirrhosis of the liver and liver cancer.

Nippon Pharmaceutical is now the only firm remaining from three targeted by the lawsuits, which has seen around 1,400 people seek redress.

UK: Barclaycard fined for nuisance phone calls

Barclaycard has been given the largest possible fine for a period two years ago when it engaged in 'the most serious and persistent' case of silent calls the regulator, Ofcom, had seen.

Silent calls take place when automated call centre systems dial numbers when there is no operative yet available to take the call. They are considered to be the worst kind of nuisance calls by consumers.

The company was said to have made substantially more silent calls than the 3 percent that were tolerated in rules on silent calls made in 2006. Ofcom said that the company was guilty of persistent misuse, and should have received a heavier still fine than the 50,000 UK pounds it was permitted to impose.

US: Eli Lilly payments to doctors to be reported

Eli Lilly has said that it will break new ground by disclosing how much money it has paid to doctors for various services. It will give details of all payments greater than $500 to doctors, typically paid for advice and speaking, with future years also to include areas such as travel, entertainment and gifts.

The company's action is a pre-emptive response to calls for legislation to require such disclosure as many suspect that pharmaceutical firms improperly influence medical decisions through payments that are made to doctors.

John Lechleiter, Eli Lilly's CEO said that the company had learned in the past that letting people see what the company was doing was the best way to restore trust. Payments to doctors for legitimate services were fair, since they were taking their time away from their practice.

UK: Lexus claims in hybrid SUV ad lead to ad ban

An advert promoting Lexus' hybrid SUV has been banned by the UK's Advertising Standards Authority for what it described as misleading claims over its performance.

The ad, for the RX 400H car which emits 192g of CO2 per kilometre, promoted it as being "perfect for today's climate (and tomorrow's) and making "environmental and economic sense". The claims prompted a number of complaints that the ad was misleading as it suggested the vehicle had lower emissions than other vehicles. The average vehicle emissions in Europe is 158g/km, with new standards set to push that significantly lower in coming years.

Lexus argued that the ad made it clear that the environmental comparison was made with other vehicles of its type, not all vehicles. However, the ASA said that the claims were misleading, and ordered that the ad should not be run again.

India: Multinational boss beaten to death in labour dispute

The chief executive of Graziano Trasmissioni India has been killed in a violent industrial protest at the company's offices when former employees armed with metal bars and hammers overpowered security guards.

The murder of 48 year old Lalit Kishore Chaudhury followed the company's dismissal of 200 workers for vandalising premises in a dispute over pay. Following the violent protests over the siting of the Tata Nano plant, the incident has shocked the business community and may provide an additional disincentive to foreign companies from investing in the country. Police have arrested 136 protesters, of whom over 60 have been charged with taking part in the murder.

The Confederation of Indian Industry has called upon workers not to use violence to settle disputes with employers. Chaudhary was described by friends as a mild mannered man.

Prior to the incident, the company had invited the workers to talks on their position to take place the following week.

Germany: Industry climate opt-out threatens EU policy

Campaigners have attacked the decision of the German government to support a far-reaching exemption for industry from new rules on carbon emissions permits on the grounds of competitiveness.

According to the groups, the German position will open the door to a wave of similar objections from other states aiming to support their own key industries. Poland has already argued that its power companies will be disadvantaged by the move, and Italy has argued for free permits for certain sectors.

Germany's move came after the European Parliament's industry committee voted for a mandatory auction of carbon permits between 2013 and 2020 to replace the current system, which involves free distribution of the permits. The proposal still has to be ratified by member states.

It argued that highly energy-intensive industries, such as steel, would already suffer higher energy costs as a result of the impact of carbon permits on the power producers and they should receive an exemption provided they used best available technology to reduce emissions.

US: Companies behind on meeting challenge of climate change

US companies understand that climate change represents a significant risk to their business, but are behind global companies when it comes to taking action, according to a new survey by the Carbon Disclosure Project.

According to the survey, around 81 percent of US respondents saw climate change as a risk, with a much smaller 33 percent actually having targets to reduce emissions of greenhouse gases, as opposed to 74 percent of global companies.

Partly, the survey's authors believe, this is down to regulatory differences. The European Union has had mandatory caps on greenhouse gas emissions over the last three years, whilst the US has no federal limits currently in place.

Ghana: Hundreds of children rescued from cocoa child labour

As many as 360 children have been rescued from child labour in cocoa growing areas in Ghana after the government collaborated with Children's Rights International in a combined operation.

Nearly two-thirds of the children have opted to go to school, with the other third going on to learn a trade of their choice. A recent survey showed that over half of children in one of the cocoa growing areas were unable to read and write.

Child labour remains a prevalent feature of Ghana, with around 20 percent of the country's children thought to be active in a range of activities such as agriculture, fishing, weaving and mining - a total figure of around 1.2m, including nearly 250,000 engaged in hazardous forms of labour.

China: Consumers see environment a high priority

According to recent research by a number of WPP agencies, Chinese consumers now see the environment as a higher priority than do their US and UK counterparts.

The surveys found that 31 percent of Chinese consumers said that the environment was a higher priority than the economy, as against 28 percent in the UK and 17 percent in the US. In addition, 69 percent of the Chinese respondents said that they expected to spend more on environmentally friendly products in the next year.

As far as these consumers are concerned, technology and financial services are currently the greenest industries, with the least credit given to food and energy companies. Favoured brands included Haier, Baidu and Google, as well as Microsoft and Apple.

US: MillerCoors called upon to abandon alcohol-caffeine drink

Twenty five states have asked MillerCoors to shelve its plans to introduce a new caffeinated alcoholic drink in the name of promoting responsible drinking.

The drink, 'Sparks Red', would particularly appeal to young people because it enables drinkers to keep going for longer, with the caffeine reducing the sense of intoxication and giving energy. But, according to the states, the combination is clearly designed to appeal to those who drink with the intention of consuming large quantities.

In addition, say the states, young drinkers might be more tempted to drive because of their reduced perception of being impaired.

MillerCoors has said that it intends to go ahead with the drink, which has had approval by all relevant authorities.

Japan: Mikasa Foods scandal grows as scale of problem grows

The government has said that the quantity of tainted rice distributed by Mikasa Foods was four times greater than previously believed, with the contaminated product distributed to 370 companies.

The government has said that any further contaminated imported rice will be returned to the exporting countries or destroyed if hazardous materials are identified. Previously, it had sold such rice to companies, including Mikasa Foods, on the basis that it would be used for non-edible products, such as glue.

Three other firms in addition to Mikasa Foods have been named as having put tainted rice into the food pool. The latest was Shimada Kagaku Kogyo, which has admitted to its actions and apologised.

Uzbekistan: Child labour in cotton banned

Uzbekistan has responded to mounting pressure to ban child labour from its cotton fields. Uzbek Prime Minister Shavkat Mirziyayev has signed a decree to bring the country's laws into line with international standards.

The Government has set out a working group to monitor practice against the new minimum age of 16. The move follows recent representations by western retailers including a group of industry associations which had begun to exclude Uzbekistan as a source for cotton goods.

Cotton is a major export crop for the country, and each year students and - in the past - school children have been mobilised to go into the fields for the harvest season, which has just arrived.

CSR FEATURES from the Internet

Firms look at open source for CSR ideas - 23 Sep 2008 FROM Business Standard (India)

After changing the world of computers, 'open source' is helping companies in their corporate social responsibility (CSR) initiatives and creating social entrepreneurs who are determined to take on the challenges that face the world.

Adopting the spirit of open source, people are appropriating innovative ideas and improvising them for coming out with solutions that help make the world a better place to live. And companies are all too eager to join hands with social entrepreneurs in putting their ideas on the ground, even showering the social innovators with prizes, sponsorship and linkages with industry and other stakeholders.

Read full story

From stone quarry to UN - 21 Sep 2008 FROM Hindustan Times

Devli Kumari is anxious about her forthcoming trip to New York – not about addressing the United Nations General Assembly on child labour, but because she fears her name may be struck off the school rolls if she takes longer than the five-day leave sanctioned to get back.

The 11-year-old Jodhpur girl, born in a family of bonded labourers who worked as stone-cutters, began work at four. The family of six would wake at 3 am every day, and work in stone quarries at Charkhi Dadri in Bhiwani district of Haryana till 9 pm. For this, they were given a kilo of flour once in two days.

Read full story

Recent entries from Mallen's blog

Some integrity amongst chaos - 23 Sep 2008

Robert Willumstad, the outgoing head of AIG who left the role after only three months as part of the US government bail-out, has bucked the stereotype of corporate executive greed by voluntarily declining the $22m severance he was due. Read more

Now is the time - 18 Sep 2008

I was at a meeting this morning that brought together half a dozen CEOs or equivalent. None of them from companies at the heart of the current storm, but all of them looking pretty dazed and shaken at the events of the last couple of days. Read more

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Learning from chaos

There are still some people that think corporate social responsibility is about giving stuff away. A bit of charity. Nothing to do with how you make your money. Some of those people will now have their names always attached to the story of the financial crisis of 2008, and there are more to follow.

The financial crisis is going to affect everyone. But it has not been caused by good businesses, creating products or offering services that people need, and doing so with integrity.

It has been created by companies that began to believe in a form of business where trust and integrity were naive, fringe concepts that played no part in the process of wealth creation. And yet, the whole edifice came crashing down when trust disappeared overnight, when the banks didn't believe each other and refused to do business together.

There are two parts to this - the way that companies are owned, and the way that the financial markets created products that had no connection to real value creation.

Five years ago, I wrote the following: "For decades, owning shares in companies has become a game of chance - a way to make money quickly from assets and processes that you briefly own, but take no responsibility for. The fact of ownership without the responsibility of ownership is exactly what has created businesses that have been able to thrive financially without an eye to some of the fundamentals of risk and sustainability."

It isn't just about dealers shorting stocks in an attempt to make money from thin air. It's about oversight and accountability.

The fact is that all these companies, Lehman Brothers, Bear Stearns, AIG and the rest, had massive financial holdings that were worth considerably less than they thought. Nobody was able to penetrate the fog to get to the truth of it. Nobody really knew or understood the terms of their securities and what they were worth. They had become so far removed from the real circumstances of primary debt holders that the warning signs, which should have been plain to see, were obscured from view.

How do we keep doing this? A few years ago, it was the dot com bubble, when a bunch of apparently sane, rational people began to believe that the laws of gravity had been suspended by the advent of the internet. This is the economics of Disney - the character who runs of the edge of the cliff, and can keep running up until the point he looks down and realised there is no ground under his feet.

Does it matter that this was a shared madness, not a sign of unique wickedness on the part of a few? Certainly not as far as the public are concerned, who see billions of dollars of their tax money about to be committed to propping the whole thing up, and are outraged if this goes to the benefit of the overpaid people that they feel caused the problem in the first place.

The US has traditionally been the place where people did not waste time envying the super-rich, but instead saw them as evidence that ordinary people could apply themselves to succeed. And so long as they look at the super-rich and they see risk-takers, people who built a company that makes stuff, companies that then work to keep their trust, they are still pretty much content to see huge wealth. We're talking the Apples, the Googles, the Microsofts.

But they have shown that they draw a line at the fabulous super-rich that they suspect got that way by finding new and underhand ways to cream off money from wealth creators and other ordinary folk, but who actually create nothing of real value. The billionaires they've never heard of are the ones they are most ready to believe the worst of.

And the companies have played into the stereotype with greedy gusto. Last year, Wall Street's five biggest firms paid themselves $39bn in bonuses. The companies were Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley.

That is a lot more than the $29bn loan now being made by tax payers to JP Morgan. During that year of record bonuses, the companies together lost nearly $75bn from their collective share price.

Such practices, that had become wholly institutionalised and accepted, smack of the decadence of the Roman Empire just before its fall. When the mighty forget the practices that made them so, and fall into believing that it is simply owed to them as their birthright, that is the beginning of the end.

But unlike the Roman Empire, which built itself on solid foundations but then lost its way, there were no foundations at all underneath this new empire. Somebody should have noticed that all the vast wealth claimed for the mortgage-backed securities, and collateralised debt and the rest, was not real. Greed, wishful thinking, and the knowledge that if you could play the system for a while and then get out, maybe you could make your huge personal fortune before it all came crashing down.

Oh, by the way. Bear Stearns produced no CSR report of any sort. Lehman Brothers did not produce a CSR report, but they produced a philanthropy report. Even if they had gone further, it seems unlikely that the complex nature of how they created wealth would have been a feature.

Now it needs to change. If anything is to come out of this, it has to be that corporate social responsibility once and for all leaves behind the philanthropy tag, and we see clear focus on two areas:

* How we create a different ownership structure for businesses where responsibility for consequences is a more real feature of share ownership.
* That the oversight and accountability demanded of companies now goes into the detail of how they make their money - and what are the consequences of their actions.

Two months ago, such concepts were unthinkable. Now they are essential.

CSR is about the health of the relationships between the company and other stakeholders, with a view to building trust. The current crisis is about the collapse of trust. The biggest task for the banks for the next few years is to rebuild it. It is definitely time for CSR to take centre stage and focus on some of the hard questions.

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In the news from the latest issue

UK: Five companies to be prosecuted over oil depot fire

Nigeria: Chevron cleared of human rights abuses

Nigeria: Poisonous chemicals in teething mixture killed 28 babies

China: Kader settles labour dispute after violent protests

South Africa: Police investigating BAE Systems over bribery allegations

UK: Tiger Beer 'disrespectful ad' pulled

Greece: BP and Shell fined for anti-competitive behaviour

US: Bayer to settle bribery suit on diabetes drug

US: Fashion designers and retailers hit with fur lawsuit

UK: Primark pulls from PR Week event following protest threats

Germany: Former Siemens managers convicted in corruption charges

US: Environmental programmes provide financial returns for majority

Australia: Wool producers risk ban with change to mulesing promise

China: Baidu caught in scandal over false information

... more news stories

To make any comments / suggestions re. this site, please contact mallen@mallenbaker.net
Business Respect - most recent edition added on 24th November 2008