Business Respect - CSR Dispatches No 138 - 13 Oct 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 quality of leadership questions in the financial crisis can go beyond blame.

In the news:

Feature articles on the internet:

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Topics:

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Welcome

This was a good week to be on holiday, enjoying sunshine in Dubrovnik and every now and then just checking to see, yep, world-wide financial meltdown still under way.

I could easily have just reproduced the same main article as two weeks ago. It certainly remains just as relevant. But instead, I thought since there has been a growing theme in coverage of anger directed towards the 'greedy and stupid' individuals who got us into this mess, I thought there was more to be said here.

However, since this editorial is being typed in the lounge of the hotel, and the waitress has been gently telling me off for working on holiday, it is a short editorial this time. All those who prefer short editorials only have to sponsor me to have a fortnightly holiday in the sun to achieve their dream!

Here's hoping for some better news over the next couple of weeks as the world tries to work its way through the chaos.

Mallen Baker
mallen@mallenbaker.net

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CSR News 13 Oct 2008

China: Dairy companies say sorry for toxic scandal

Three dairy companies have apologised for their part in the major toxic milk scandal that has left four children dead, up to 50,000 others sickened, and has seen dairy products from China pulled from sale across the world.

Inner Mongolia Yili Industrial Group, Mengniu Dairy and Bright Dairy Group had all been shown to have sold milk doctored with melamine, used to cheat tests for nutritional quality.

Executives from the companies said that they had been fooled by unscrupulous suppliers who sold them the raw milk. They said that they would hold prices for their milk at the current level, in spite of the extra costs that higher quality controls would impose on them.

The scandal has completely undermined faith in the safety of Chinese products amongst many consumers and companies across the world. According to recent reports, new tests carried out on dairy products have shown no new cases, but the scale of the scandal has meant it will take a long time for confidence to recover.

Venezuela: McDonald's closed down for 48 hours

The Venezuelan government has shut down all branches of the fast food chain McDonald's for 48 hours, claiming tax irregularities, although following a tit-for-tat battle with the US over diplomatic expulsions.

The company has 115 branches in the country, all of which were closed between Thursday to Saturday. The action follows recent similar action against Pepsi, and action to nationalise the local operations of a number of oil companies.

Ivory Coast: Lawyers walk out of pollution trial

The trial around the dumping of 500 tons of chemical waste by a company acting on behalf of Dutch firm Trafigura has been halted when defence lawyers walked out in protest at the company's absence from court.

The trial may continue following negotiations with the lawyers. At the heart of the protest is the fact that nobody from Trafigura, which said that it had contracted with a local firm in good faith to dispose of the waste properly, had been prepared to attend the court. The local administrator for the company had been asked to attend as a witness, but had left the country in advance of the trial commencing.

The local firm that Trafigura contracted to treat the waste had simply dumped it at sites around the city. Much of the waste remains where it was originally dumped. Trafigura had paid around $200m to the government without admitting liability.

Kazakhstan: Ministry threatens to block companies over environmental performance

Kazakhstan's Environmental Protection Ministry has said that it will take drastic action if oil and mining companies continue to fall short on meeting environmental regulations.

Companies in the firing line include consortia led by firms such as Eni and Chevron, as well as local firms. If the government feels too little progress is being made, it said that it could take measures such as cancelling waste permits that would effectively block their ability to operate at all.

The move follows the fining earlier this year of Tengizchevroil, the consortium led by Chevron, for breaches of environmental laws.

Israel: Dairy fined over silicone addition to milk

Israel's major dairy firm Tnuva Food Industries has been fined nearly $16m for incidences of adding silicone to milk over 13 years ago.

The fine was the result of a class action suit against the company brought at the Tel Aviv District Court following revelations that it added 10 times more silicone than the maximum permitted. The court labelled the incident a serious breach of trust towards consumers that was made by planned deception.

Much of the fine will go towards research in food and nutrition and providing free milk for families in poverty.

Tnuva said that the fine was excessive, saying that it had replaced all managers associated with the case, and had put significant change in place to cover its production process.

US: AIG attacked for expensive retreat just days after bail-out

Martin Sullivan, the former CEO of AIG, came under fire as he testified to Congress as the chairman of the committee flashed images of the luxury hotel that had hosted an executive retreat for the company at a cost of nearly $400,000 just days after the firm's saving from collapse.

AIG has admitted that the retreat took place, although it was said that the event was a reward for a group of self-employed life insurers not for AIG executives. The distinction did little to quell the outrage surrounding the revelation as the figures spent were compared to amounts owing on mortgage payments by people about to lose their homes.

The committee also attacked Mr Sullivan in conjunction with a former witness, Mr Fuid from Lehman Brothers, for both 'refusing to accept any blame for what happened to their companies'.

Starbucks accused of water waste

Starbucks coffee company has been accused by environmental groups of massive water wastage through the practice of leaving taps running in its 10,000 world-wide stores all day.

Environmental groups said that the company was wasting millions of litres of water every day, and should review more water-efficient processes for utensil cleaning.

According to Starbucks, the constant flow runs a 'dipper well' which is used for keeping utensils clean, and is run at a very low pressure. It said that the system ensured that the company met health standards in an effective way that balance water conservation with customer safety.

Congo: Questions raised over UN deal on drugs

Police in the City of London, UK, are carrying out an investigation over alleged corruption in a United Nations programme to supply essential drugs to Congo.

Denmark generics firm Missionpharma is accused of having made payments to the tune of around $1m to a charity that advised the UN on the programme to supply HIV and malaria drugs. The financing body for the project, the International Global Fund for Disease Prevention said that it was 'deeply concerned' that there had been a major breach of trust over money intended to save lives.

Missionpharma has confirmed that investigations are taking place, but has denied all wrongdoing.

Bosnia: Women entrepreneurs increasing in face of challenges

A new report shows that the number of women entrepreneurs in Bosnia and Herzegovina is growing, in spite of significant challenges that they have to overcome and calls for a new dialogue between the government and women in business to address 'pervasive discrimination'.

The report, from the International Finance Corporation (IFC)and MI-BOSPO, says that women are showing a growing interest in business, even though few currently own their own businesses and women are economically still disadvantaged with low labour force participation rates of 43 percent. Women account for 58 percent of students of business management in the country.

The initiative behind the report aims to document the challenges faced by women entrepreneurs and to highlight the success stories of women that have overcome such obstacles. It outlines some of the discrimination that women face, being seen as a burden by some employers due to maternity rights, and with older women being discriminated against due to considerations of their age and looks.

India: Tata calls it a day and pulls Nano project from West Bengal

Tata Group has followed through on its threats to pull its planned production of the new Tata Nano car from West Bengal in the light on ongoing violent protests in the state.

The Nano was due to be launched in October this year, but has been delayed by the problems at the plant, where protesters have attacked the acquisition by the State of land to be used by the factory and some of its suppliers.

Tata group boss Ratan Tata said that the company had little choice in its move, and it was not prepared to continue operations with police guarding workers from constant threat of physical violence. The company is now considering offers from other states.

The episode is likely to have an impact on the readiness of national or international businesses in investing in West Bengal in the future. It has been seen as an indicator of the growing tension between industry, which needs land to develop, and the farming community which is reluctant to release land.

The announcement of the Tata withdrawal has lead to thousands of supporters of the plant taking to the streets, armed with sticks and iron bars, blocking roads and burning effigies of opposition leader Mamata Banerji who was a leader of the protest campaign.

China: Skype accuses joint venture partner over censorship

Skype, the internet communications subsidiary of Ebay, has accused its Chinese joint venture company Tom Online of failing to tell it about a censorship programme run on behalf of the government which picked out politically sensitive terms.

The statement follows the revelation from researchers in Canada who detected the monitoring and publicised the fact. They said that Tom Online was scanning messages for phrases such as 'Taiwan Independence' and uploading the data to the company's servers if a positive match was found.

Skype said that it was very concerned about the revelations, and that Tom Online had unilaterally changed the agreed protocol. It added that only instant messaging services were affected - standard Skype voice communications remained private and secure.

Guyana: Omai Gold accused of unfair exploitation

Canadian company Omai Gold Mines has been accused in Parliament of having exploited the natural wealth of Guyana prior to handing over the mine at the end of its tenure.

Opposition Member of Parliament Khemraj Ramjattan said that the original contract signed between the government and the company was signed from a position of weakness on the part of the Government, and it had not been a contract of equals. As a result, the company had extracted nearly 4m ounces of gold over more than ten years, of which only five percent was paid in royalties.

The company finished extraction in 2005, and has just reached the end of the three year clean-up period to ensure that there is no future pollution from the site which has seen the extensive use of cyanide.

The mine has not been free from controversy. Two years ago, the Guyana Supreme Count ordered a $2bn class action lawsuit brought on behalf of 23,000 people in connection with a 1995 accident be dismissed. The incident had seen a dam breach leading to 80km of the Essequibo being declared an environmental disaster zone.

US: Google and Levi's join companies opposing ban on gay marriage

Google has broken with its stance of non-involvement with social issues to formally urge voters in California to vote against Proposition 8, an initiative that would ban gay marriage in the state. In doing so, it joins a number of other companies, including Levi Strauss.

In a post on its blog, company cofounder Sergey Brin said that it normally avoided taking positions on social issues because of the huge diversity of its workforce, but in this case the proposition would have "a chilling and discriminatory effect" on many of its employees. "While we respect the strongly-held beliefs that people have on both sides of this argument, we see this fundamentally as an issue of equality", the company has said.

Levi Strauss's opposition to the proposition is in line with its long-standing position, as the first Fortune 500 company to offer health benefits to the domestic partners of gay employees.

US: Yum Brands to give calorie info in restaurants

Yum Brands, the owner of companies such as KFC, Taco Bell and Pizza Hut, has said that it will introduce calorie information at its restaurants across the US as part of the response to growing concerns about obesity.

The company said that calorie counts would be given for individual serving sizes, and it would be encouraging franchisees to similarly adopt the practices for restaurants not directly managed by the company. Overall, Yum Brands numbers 20,000 restaurants across America.

The move gets one step ahead of a growing public debate about requiring such information to be made available by restaurants. California has introduced legislation requiring chains with 20 restaurants or more in the state to list calorie counts on menus from 2011.

Nicaragua: Government claims zero corruption

Nicaragua's Comptroller General has said that no public officials have been punished for corruption during the first 18 months of President Ortega's term, and this showed an improvement in the conduct of government employees in contrast to previous governments.

The statement flies in the face of the findings of Transparency International's 2008 Corruption Perceptions Index which gave the country the dubious honour of being ranked the most corrupt country to do business in within Central America.

Overall, Nicaragua came 134th out of 180 countries.

President Ortega has been credited with making greater efforts to show pro-business credentials since his re-election, although there remains uncertainty about the government's economic policies.

US: Former British Airways executive to be jailed for price fixing

The former commercial general manager of BA World Cargo is to serve eight months in jail after pleading guilty to fixing prices of air cargo shipments.

Keith Packer is the third industry executive to be jailed over the conspiracy, following ones from Qantas and SAS Scandinavian Airlines.

British Airways has been fined a total of $420m in the UK and the US for its role, and further of its executives are currently under investigation. The EU is likely to bring further charges against the airlines in the near future.

Virgin Atlantic has admitted it was involved in the cartel, but has avoided prosecution as it was the first company to come forward with information about the conspiracy.

Wal-Mart to boycott cotton from Uzbekistan

Wal-Mart has said that it is asking its suppliers not to use cotton from Uzbekistan due to concerns over the use of child labour in its production.

The move brings the retailer in line with other major brands that have eschewed the use of Uzbek cotton over recent months. The company was part of the coalition that called upon the Uzbek government to take action. Although the government responded with a national action plan to ban child labour, the companies believed the lack of independent monitoring meant that child labour has persisted.

Wal-Mart has said that the boycott will end if the government can introduce credible independent verification to show that there is no continuation of the use of child labour.

CSR FEATURES from the Internet

Peru children demand right to work, end to exploitation - 6 Oct 2008 FROM Thaindian News

Child labour may be condemned as a gross abuse of human rights, but in Peru children are demanding their right to lawful employment as an alternative to labour exploitation, arguing if poverty persists, so will child labour.The Manthoc Child and Adolescent Workersâ Association uses its scarce resources to promote the rights of children and a better quality of life for labourers under the legal working age.

They come together on their own initiative - with adults performing only minor roles - to demand recognition of child labour as a legal activity, in which childrenâs development is promoted and youths are protected from harm.

Read full story

Recent entries from Mallen's blog

Students: How not to do research - 13 Oct 2008

I received this email this morning - it is not an untypical example. Name has been removed to protect the guilty. Read more

So you have company values - do your staff care? - 2 Oct 2008

The values of your company are about what you are encouraged to do when nobody's looking. But you still have the responsibility for your own actions when you decide what to do with the encouragement. Read more

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All senior bankers are stupid and greedy - discuss

Article by Mallen Baker

Standing up for the heads of major financial institutions is something akin to campaigning for the rights of mass murderers at the moment. But tempting though it is to write off the last couple of weeks as the consequences of greed and stupidity, explanations that rely upon a belief in the shortcomings of a group of people are pretty unsatisfactory.

People respond to incentives. There is no law of nature that would result in all the greedy and stupid people being attracted to, and rising to the top of, the banking industry. So you have to assume that where the financial institutions went wrong was that incentives were misaligned, and there was a collective failure of leadership to see the writing on the wall.

This was not all the fault of the bankers. More conservatively minded banks, such as the UK's Lloyds TSB were coming under investor pressure a couple of years ago to be more adventurous in pursuit of higher returns. They resisted the pressure, but the people that tell you that management is merely the servant of the shareholder would generally frown on the fact. In this sense, you get the bankers you deserve.

Does this mean that nobody was greedy? No, but it was the same collective greed that persuades otherwise rational groups of people to believe that the laws of gravity have been suspended, and there are just piles of cash waiting for the brave to scoop them up.

What we are now seeing, however, is lots of blame-game and finger-pointing and one of the downsides of enjoying those high executive salaries is that fingers are very easy to point at high pay for low results.

So these are not exceptionally greedy people, and they have the talent to rise to the top of their professions. But ultimately, with the balance of incentives and checks and balances that exist, this nevertheless creates a process whereby executive pay spirals upwards, apparently disconnected from base pay of others in the business.

This is usually excused because quality of leadership is so important to businesses - and it's worth paying for if you can get it, because it's such a key factor in turning a business around.

The trouble is that many of the individuals in whom this faith is invested are not such great leaders, in fact. The proud ones, the arrogant ones, the command-and-control ones that are admired and feared in equal measure - they have a pretty poor track record of performance in actually delivering results.

Robert Willumstad, who took the reigns for three short months at AIG before the government bail-out required a change of leadership - he probably has the right stuff. He came to the job well respected by previous colleagues. He was one of the few executives who refused the pay-off he was, on paper, due because he saw that it would not be right. That is real leadership. If the quality of leaders was more consistently high amongst those whose services are so hotly contested then there would be more of a collective realisation that restraint would serve the business community so much better than taking the most that can be grabbed from the system.

That is not the same as saying that all executives should take a pay-cut. Talent should be rewarded and the job of leadership can be onerous with long hours and high pressure. But the balance of incentives is wrong.

At the moment, pay scales are so high that CEOs can console themselves over the high probability that they will only be in post a short time (the average life of a CEO in post is 3 years) by the fact that they may earn enough that they never have to work again. If it all goes wrong, that is some compensation.

That creates incentives to play for the short term, and to take risks that may lead to problems later - after the individual concerned has moved on.

Perhaps the incentives should be changed. The boss starts at the company with a small salary, which is due to progressively rise over ten years. By the end of that time, the compensation - tied to the success of the company - is very significant. And doubles in size once he or she has carried out a proper process of succession planning.

Could a company like that attract top talent when others are offering the lure of the short term big pay-off? Probably not. But if the business community is serious overall about its desire to attract the best quality leadership into the top jobs, it really needs to reconsider what are the counter-intuitive results being delivered by the current balance of incentives.

Who are the leaders prepared to go against the prevailing opinion in an industry? Who has a track record in creating empowered companies, with employees working together to create real value? Who is passionate about the product or service because of the positive value it can add to people's lives? These are the leaders we need.

Not one of them can really show their value in under three years. What if Herb Kelleher had been at Southwest Airlines for just three years? What if Steve Jobs had left Apple again after just three years? What if Bill Gates had sold up and moved on as soon as he could?

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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