Business Respect - CSR Dispatches No 144 - 5 Jan 2009

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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 what we learned last year that could help us in 2009

In the news:

Feature articles on the internet:

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Topics:

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Welcome

Welcome to the brave new world of 2009!

Usually, I use the last issue before Christmas to review the previous year, and the first of the new year to look ahead. There has been, for obvious reasons, a lot of that and all saying much the same thing. So I thought instead I would consider what have been the main things we learned from what happened last year. That makes the central feature this time.

We go into 2009 with more evidence of how this will affect those we care about. A plea has gone out from the very excellent Business and Human Rights Resource Centre which was supported by one of the foundations which was tricked into putting funds with Bernard Madoff. It needs support if it is going to be able to carry on its work whilst sorting through the short term fallout of this. You can make a donation at:

http://www.business-humanrights.org/Aboutus/Makeadonation

There are few resources out there I would miss so much as this one. If you've not been there yet, go to the website and find out why.

Those of you paying attention will note that the blog was a lot busier in the last couple of months. The aim is for at least one entry per day - and a lot of commentary on emerging issues, oddities other things CSR-related is now making its way there. Scan the list of headlines in this newsletter, or point your newsreader to:
http://www.mallenbaker.net/blog/xml/mallenblog.rdf

I hope your return to work isn't too brutal after the holiday break!

Mallen Baker
mallen@mallenbaker.net

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CSR News 5 Jan 2009

Italy: Investment banks may face lawsuits over unfair bonds

Italian authorities are looking at possible legal action against banks such as Deutsche Bank, JP Morgan Chase and UPS over contracts taken out to manage public debt which are felt to have been unfairly weighted in the banks favour.

Milan has been the first to float possible legal action, as it has seen the earliest losses - but other cities and regions within the country are expected to follow suit as losses mount over the coming year. The scale of the financial scandal has been described as potentially the biggest since Parmalat.

The banks are accused of having taken money that was intended to be guaranteed safe, and invested it in a way that gave a measured return to the investors in good times, but which allowed the bank to cream off higher profits. However, in a downturn the cities carried all the risk. This had not been clearly understood when the contracts were arranged.

India: Hundreds of child labour cases taken forward

Nearly 600 employers are being taken to court for breaking child labour laws in the state of Bihar, after nearly 1,500 incidences of child labour were uncovered during 2008.

The actions followed a co-ordinated series of government raids which freed 650 children from labour, and covered nearly 30,000 different locations.

Penalties for using child labour contrary to the law are Rs 20,000 ($415) for every child - money which is deposited in a child welfare fund.

France: Sarkozy / Blair summit to look at ethics in business

A summit of political leaders and economists, led by French President Nicolas Sarkozy and former UK prime minister Tony Blair, will focus on how the world can strengthen the ethical basis of the capitalist system.

The summit, which created controversy when it was announced in November last year as it appears to run parallel to the G20 process, is a response to what are seen as fundamental problems in key aspects of how the markets work - including unrealistic returns on investment and huge pay for top bosses.

Eric Besson, the French minister with lead responsibility for the conference, said that it would be a long overdue discussion on how to "restore a sense of responsibility to the global financial system".

The move is the latest initiative by the French President to seek to retain active leadership of the agenda. The US in particular has accused Sarkozy of being determined to create a referendum on the ills of capitalism. He antagonised US officials last year by failing to mention the plans for the summit during a meeting with George W. Bush shortly before it was announced.

US: Voluntary ban on pharma gifts to doctors begins

From January 1st, the US pharmaceutical industry is observing a voluntary end to the distribution of branded office items to doctors. The items, ranging from mugs and pens through to items such as computer flash drives and laser pointers, were criticised as representing the industry's attempt to influence which drugs get prescribed.

The move was welcomed by some as being a step forward, although critics claim it makes little impact on the overall quantity of marketing directed at doctors and patients. Around 40 companies have signed up to the code, including most of America's largest pharmaceutical firms.

The new code was drawn up by the industry group Pharmaceutical Research and Manufacturers of America. It bars the giving of small trivial gifts, as well as more expensive items such as tickets to professional sports events. The group said that the code was not an admission that such gifts in the past had influenced prescribing practices.

UK: Carbon positive cement developed

A British company has produced a new type of cement which, rather than being the huge carbon emitter that is traditional cement, actually absorbs more CO2 from the atmosphere than it produces - making it a potentially powerful breakthrough in the fight against climate change.

The company, Novacem, says that its formula uses magnesium silicates, which require considerably less heat to turn into concrete, and which actually absorb CO2 as the material hardens. The cement industry has been responsible in recent years for around five percent of global emissions, a figure that has been growing due to rapid development in China and India.

The material has attracted attention from a number of the world's major construction companies, such as Rio Tinto minerals and Laing O'Rourke. The company believes it can be bringing significant volumes to market in five years.

China: Head of dairy pleads guilty over tainted milk

The former chairman of Sanlu, Tian Wenhua, has pleaded guilty to selling tainted baby formula. She said that the company had known for months that there was a problem before telling local officials.

The company, which is one of China's biggest dairy companies, sold milk products which had been watered down, and then altered with melamine to raise its protein count. Melamine can cause a variety of ailments, and the tampering lead to serious health problems for nearly 300,000 children, six of whom died.

Tian Wenhua could be sentenced to life imprisonment or even the death penalty.

The scandal has laid waste to the country's dairy industry, and has been a leading factor in destroying confidence in Chinese exports for a range of goods on safety grounds.

CSR FEATURES from the Internet

Reality bites: Business first, CSR later - 31 Dec 2008 FROM ABS-CBN

It was sexy to be virtuous and unselfish in 2008.

Sustainability -also known by its many permutations: Corporate Social Responsibility (CSR), Enlightened Enterprise, Business for Society and Environment, and many more - expanded its reach. And on top of the academic definition of voluntary caring for resources now for users of tomorrow - which in Asian oligarchic business context could translate to making sure the next generations have a robust business or source of wealth to inherit - environmental groups have engaged wealthy Filipinos to add a green dimension to their good works.

Read full story

Profiting from the poor - 23 Dec 2008 FROM BBC

Wall Street bankers and London fund managers have little in common with Mongolian craftsmen and Philippine tuk-tuk drivers.

But the world of high finance is beginning to take an interest in the lives of those at the bottom of the economic heap.

Read full story

Recent entries from Mallen's blog

So that's what Christmas was all about - 4 Jan 2009

I imagine that the makers of this video believe it promotes the great power and desirability of the product that is the centre of attention. For me, I can't watch more than half of it - it seems too powerful an expression of the mistakes we're making. An over-reaction, certainly, kids have always been powerfully motivated on this kind of stuff. But you watch it and see if you don't find it pretty disturbing after a while. Read more

Not quite raving fans - 3 Jan 2009

So, in Japan at the end of last year, one of the branches of McDonald's paid around a thousand people to queue outside the store for the release of their new Quarter Pounder burger. What do we think about that? Read more

Licence to deceive - 2 Jan 2009

If you systematically deceive your customers, and they find out about it, you would expect to lose big-time, wouldn't you? You might wonder, when you note that the US credit card companies have been labelled by the regulator as 'unfair', 'unreasonable' and 'deceptive'. But here's the kicker - the companies have to change their ways in 18 months. Read more

Here's to a tough new year - 1 Jan 2009

I hate to say it, but the last thing we need now is a better 2009 than we had 2008. I know this is a mad thing to say, especially when you consider that these are real consequences with real pain behind them. But if everything began to improve in the next couple of months, we would miss our best, historic opportunity. Read more

CSR is dead - part 412 - 28 Dec 2008

2009 will see a lot more people predicting the 'death of CSR' due to the onset of tough economic times. These people are operating to a different definition to the rest of us. Read more

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So what did we learn in 2008 that we can use in 2009?

Article by Mallen Baker

I don't know about you, but I have had my fill of articles and blog entries which aim to review the year 2008, or make predictions for the year 2009. All the reviews start the same - what a year it was, and whoever would have thought it - and all the predictions are statements of the obvious - it's going to be a tough old year to come.

So I thought instead it would be interesting to reflect on what we actually learned from the events of last year - and particularly on whether those learnings would be of any use as we face the next year and ponder where next for corporate social responsibility.

First - most people, including the declared supporters of CSR, have not really bought the business case arguments that have been put out there by a range of organisations, research groups and others.

Early in the year the IBM study said that it proved that CSR helped companies to be more competitive. It was the latest in a long line.

But as recession bites, we see lots of people on the defensive. It's not that companies have come out to declare they no longer believe in CSR, but CSR budgets are being cut, plenty of CEOs are talking about focusing on core business, and other things are on hold.

This is not unique. The marketing budgets have been cut. The HR development programme is on hold. Hatches are battened down all over the place.

But if decision makers had really bought the argument that CSR made them more competitive, they would be talking about that as part of their way out of the crisis. If CSR budgets were being cut, they would be demonstrating how they aimed to do more with less - like they are with the marketing budget.

The fact is that the research reports didn't prove anything, and many of the key decision makers didn't believe for a moment that they did. No-one was going to call this except for the critics - because actually there are plenty of good reasons to do this stuff. The benefits may be unproven - like every marketing campaign is before it's actually been run - but that doesn't mean they don't exist.

There has been a whole industry based on this line in recent years. Trying to prove cause and effect - successful business = responsible business. It's time to move the argument on, because all of those attempts bought into one central assumption - that it is the primary role of business to maximise shareholder returns and therefore any CSR commitment needs to show that it delivers cash to the bottom line in a direct and predictable way. That is the biggest assumption whose future is questioned by recent events.

Second thing we learned (or re-learned) - the basics still matter. Even in this crazy faster-than-the-speed-of-thought internet universe. The banks got very innovative in creating financial instruments that buried the visibility of risk. The shining edifices of the investment banks' headquarters attested to the permanence and solidity of those institutions. But when some of them fell, they fell so rapidly it gave the lie to those perceptions.

If the rock-solid institutions of yesterday could blow away into the dust because they had no solid foundations - which other apparently rock solid pillars of our society do we suspect may have similar problems? What about the global food chain? What about the entire tourism industry? Or the insurance sector? Or the entire natural ecosystem? If we think any of those are 'too big to fail' then what is our strategy other than the blind faith that didn't work too well last year?

Third - the other side of the maximising shareholder value is that CEOs are attracted and retained by large financial rewards. And if those rewards can be aligned with the interests of shareholders, then businesses do well. If they become disconnected, then the CEOs may 'go native' and do things against the shareholders interests.

This way of thinking has led to the view that huge pay for CEOs is necessary to attract and retain great talent. There is some truth to this, in that if you pay peanuts you get monkeys. But likewise, if you make vast financial reward the key motivator for CEO success, then you attract the kind of people who value above all else vast financial reward.

What is wrong with aiming to motivate people to want to do a great job because it creates value, it provides a service, it gives people fulfilling and meaningful jobs, and it can help to solve some of society's problems. What sort of leaders would we attract if we could do that? We need Mandela-like leadership, not Attila the Hun style leadership for this next bit.

Because last year we saw again how important is leadership. Barack Obama captured the imagination of the world - all because people saw the possibilities now that they felt real leadership was in evidence again in one of the most powerful nations in the world. Forget the politics of the parties - this is just about vision and focus.

Did we see any leadership in the financial sector? Some, not much. Some companies refused to take part in the parlour games of the sector overall and kept their feet on the ground. They did not criticise their peers, and they have enjoyed not being part of the story of crisis.

Most, however, embraced the logic and did what they were asked to do. Some of the people that asked this of them are now the ones condemning them. But that's stakeholder expectations for you.

Finally - at the start of the year, everybody was talking about the rise of private equity. A number of the CEOs and other business leaders I dealt with at the time talked about their ambition to get into private equity, where the rewards were seen as huge and the irksome barriers seen as few. A brutal world, where stellar performance was expected, but stellar rewards were duly delivered as a result.

But it was all based on the leverage provided by cheap credit. A private equity firm could buy a poorly managed company having borrowed eighty percent of the cost, and putting in only twenty percent of the stake from its own funds. If it could then turn the company around and float it back onto the markets - say at 120 percent of the price paid, then the debt is repaid, and the company has doubled its money. The mathematics of this simple process made a number of individuals super-rich.

But what happens to the ethics of the portfolio companies that are in the process of being turned around? It's not that they are always thrown overboard - they aren't - but where was the hard-edged business case that would have played with the hardball players who just wanted a turnaround and a big return?

Now, of course, it has all changed. The credit flow has dried up. Don't expect to see any cheap credit again any time soon. And the stock values of companies have plummeted. Maybe it'll be awhile before the stellar returns are realised as well. Oh, and since companies are doing badly then some of the struggling badly managed companies are ... at best, struggling well managed companies.

Maybe that is all to the good. Suddenly, the owners of companies are going to have to behave like they might just own them for a bit longer than they expected, and wonder what they have to do to build long term value.

So - learnings at the end of all that?

1. We need a more robust discussion about the benefits to society and business of a different way of doing business. This needs to be quite radical - none of yesterday's assumptions are exempt from scrutiny. Why? Because the rules just changed. Even if you don't think that changes anything major, it would be as well to check.

2. Let's lose the sloppy thinking about CSR and bottom line benefits. Nobody believes that the equation is this simplistic. Any more than they would someone who 'proved' that companies that sell the most are the ones that spend the most on marketing.

3. The basics matter. But we, as a society, are prone to wishful thinking. The dot-com bubble. The credit crunch. How can we avoid this effect in the future - particularly over things that are genuinely too big to fail, and are now subject to a government bail-out if they do?

4. Is there a concept of a 'fair return' for shareholders to replace the 'maximum return' concept? Can we get more people to buy in to a sustainable future if it means that the smart or lucky ways to get unfeasibly large returns are no longer possible? Guess what - you have to work hard to get rich, not just get lucky?

5. Since pay for CEOs is one of the easiest targets for discontent when poor CEO performance is one of the big issues, we should expect to see this reined in. There's an opportunity there for some visionary CEOs to show leadership. And an opportunity for society to build a vision of what the job of a CEO is, and how they should be motivated. Pay peanuts, get monkeys. Pay obscene salaries, get obscenely greedy monkeys.

Learn from the best of the voluntary sector, and blend it with the best of the private sector.

6. Take the challenge to the private equity guys. The party's over. What are the real strengths of the private equity model we could learn from? What are the real downsides?

That's quite an agenda for the next twelve months!

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In the news from the latest issue

US: Obama lobbied over internet censorship

Japan: False labeling in the spotlight again for Nippon Meat Packers

OECD anti-bribery convention largely not enforced

Novartis nears swine flu vaccine but won't donate any to developing countries

Bangladesh: Factories required to control pollution by 2010

UK: Alliance Boots leaves Ethical Trading Initiative

Saudi Arabia: Tobacco companies face compensation suit from smoker

Indonesia: New eco investment index launched

Nigeria: Shell pays $15.5m to settle Saro-Wiwa suit

US: Mattel fined $2.3m for lead on toys

Netherlands: Shell will compensate shareholders for reserves scandal

UK: British business targeted in US bribery investigations

Brazil: Products of Amazon destruction still widely consumed: Greenpeace

Colombia: Drummond disputes accusations over paramilitary support

... more news stories

To make any comments / suggestions re. this site, please contact mallen@mallenbaker.net
Business Respect - most recent edition added on 30th June 2009