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BUSINESS RESPECT
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Arguments against CSR and some answers
Definitions of Corporate Social Responsibility
Discussion
The Global Reporting Initiative - is it fit for purpose?
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Companies in the News
Case studies of managing a crisis
Odwalla
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and Tylenol
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Snow Brand Milk
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Emerging Issues
Drugs companies and AIDS
When to quit a bad country
BUSINESS RESPECT - CSR Dispatches#16/3-Nov-2001
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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/csr and produced every two weeks.
In this edition we look at how the recent challenges to the pharmaceutical patents on anthrax drugs change the landscape once again . Also, we report the arrival of "Everybody's Business", the new book on CSR by David Grayson and Adrian Hodges.
In the news:
1. GM and ChevronTexaco work together on fuel cells
2. Exxon calls for energy-saving action
3. Chile: Noranda targeted for aluminium plant
4. First Bank of Nigeria takes pole position for community investment
5. Leading Senegalese company joins anti-poverty initiative
6. Shell subsidiary takes the fizz out of global warming
7. Lloyd's of London 'national disgrace'
8. South Africa: company directors not yet up to speed on CSR
9. Big investors line up for social responsibility
10. US ethicist labels tobacco 'rogue industry'
11. Hermes denies supplying weapons to Sudan
12. Suppliers hit Kmart for aggressive tactics
13. New Zealand: Waste Management earns top marks for environmental disclosure
14. UK's Prudential hit by record fine for pensions mis-selling
15. Australian investors look for ethical approach
16. Employees want fairness above all
17. Companies line up to shun trade with Burma
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Topics:
Welcome
CSR News 3-Nov-2001
Drug Abuse
Everyone's Business
This issue will also be on the website at http://www.mallenbaker.net/csr/nl/16.html. However, due to this edition being produced whilst travelling, the website edition will not appear for around one week.
Copyright 2001 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
We've tried to keep production of this newsletter rigorously consistent and reliable, and this edition turns out to be the real test of that! Both editors travelling overseas, staying in hotels with problematic internet connectivity in towns with similar challenges overall - just take it from us that the fact this edition has landed as normal in your email box is a triumph over adversity! However, as a result, there may be some glitches in the formatting of the edition that you may not have seen before - hopefully that won't be the case, but in any case, normal service resumed next time.
At the conclusion of his journeys, Mallen will be attending the Business for Social Responsibility (BSR) conference in Seattle - so any readers who expect to attend that conference, we'd love to hear from you to see if we can catch up. A full report on the conference next time.
In the mean time, we're focused on the latest twists and turns in the issue of pharmaceuticals patents. With Bayer and the US government having achieved a negotiated price reduction for Cipro, the Anthrax drug, this issue may feel as though it has gone off the boil over the last couple of days. But the pressure on the patent system has now become acute - and the companies will have to respond once again.
Mallen Baker
Vanessa Wood
editors@mallenbaker.net
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CSR News 3-Nov-2001
1. GM and ChevronTexaco work together on fuel cells
General Motors and ChevronTexaco have announced a collaboration to increase the introduction of fuel cells in cars. Fuel cells are seen as the successor to the internal combustion engine, and could potentially cut the emissions of greenhouse gas CO2 emissions from motor vehicles in half.
At this stage, the two companies are not letting on how much money they are spending on the project, nor the quantity of fuel cell cars they expect to result. General Motors has said that it aims to be the first motor manufacturer to sell over a million vehicles using the technology, but that fuel cells will not become common within cars until the end of the decade. (Reuters)
2. Exxon calls for energy-saving action
ExxonMobil, the oil giant which has attracted the most criticism by environmentalists for its high profile opposition to the Kyoto Protocol, has called for accelerated research into energy-saving technologies. The company remains opposed to Kyoto, but suggests that scientific uncertainty should not be an excuse for inaction, and a proactive approach is now required for managing carbon.
The company argues that its latest statement represents an extension of its position rather than a major change, and is unrelated to environmentalist pressure. Its senior vice-president Rene Dahan did, however, admit to the "Oil and Money" conference in London that it was "no fun" being targeted by activist groups. (FT)
3. Chile: Noranda targeted for aluminium plant
Chilean environmentalist groups have filed an official complaint with the authorities seeking to torpedo plans by Canadian base metals group Noranda Inc. to build a new plant in southern Chile.
The groups allege that there are serious flaws in the environmental impact study the company submitted to the government - not least of which is that the plans fail to detail the likely impact of the plant on the environment - nor to relate what the company would do about these. Noranda is fighting the action, and says that the statement complies fully with the requirements of Chilean law. (Reuters)
4. First Bank of Nigeria takes pole position for community investment
The First Bank of Nigeria has been acknowledged as the key exponent of CSR within Nigeria when it comes to community investment. Over the last 12 months, the company has invested heavily in education and health as key priorities.
For example, the company has instituted endowment funds in 9 federal universities of at least N7.5m each. It has donated N15m to the Lagos Business School for the construction of a new 25 seater classroom.
On the health side, the company has endowed professional chairs in open heart surgery and pediatrics. It has donated N11.3m towards the construction of an emergency care unit at the Sickle Cell Centre. (Vanguard / allafrica.com)
5. Leading Senegalese company joins anti-poverty initiative
Industries Chimiques du Senegal, one of the country's leading companies, has become the first to join in partnership with the United Nations Development Programme (UNDP) to lift poor communities out of poverty. The programme aims to widen access to social services, offer small business loans and train people for jobs.
Specifically within the programme, the company will be helping small businesses that have been set up under the scheme to enter into a subcontractual relationship with it.
UNDP representative Ahmed Rhazaoui saluted the innovative nature of the social partnership within Senegal, and praised the company for taking a lead. (UNDP)
6. Shell subsidiary takes the fizz out of global warming
Shell Chemicals Canada has announced an innovative partnership solution to some of its production of CO2 - the principal greenhouse gas. The arrangement sees Shell selling its excess CO2 production to the french company Air Liquide for use in fizzy drinks, whilst it then buys from Air Liquide steam and electricity from that company's own cogeneration plant. Formerly, Shell simply vented the CO2 to the atmosphere.
The arrangement is seen as one of the most elegant co-benefit examples of the principle that one person's waste is another's raw material. (Reuters)
7. Lloyd's of London 'national disgrace'
Lloyd's of London, the world's oldest insurance market, has been roundly condemned by UK Members of Parliament after a newsletter from the Association of Lloyd's Members suggested that the 11th September attacks were a "historic opportunity" to make money.
The newsletter was circulated to Lloyd's Names, the individuals who put their own wealth on the line to back insurance risks (and who have been famously unlucky in recent years, with big losses - including a £246m loss because of the attacks). Its main message was that the increase in premiums following the attacks now made "very large profits" achievable and that Lloyd's was now seeing "one of the strongest markets in living memory".
Lloyd's stressed that the newsletter came from a member's organisation, rather than from the company itself. (BBC)
8. South Africa: company directors not yet up to speed on CSR
A recent survey has suggested that whilst South African company directors agree that sound corporate governance practices are key to their continued business success, they do not yet translate this into how they approach their social responsibility.
The survey, carried out by KPMG, suggested that only half of the respondents believed that their board was proactively attempting to manage the company's public image. The importance of social commitment was generally not highly rated by the respondents at all.
KPMG suggested that the South African market conditions are not as conducive to the corporate governance practices found in developed markets. This might impact on the effectiveness of the King 2 recommendation in further improving corporate governance in South Africa (see previous issues). (SAPA / Business Report SA)
9. Big investors line up for social responsibility
Britain's biggest investors are to put greater pressure on companies to sign up to the principles of corporate social responsibility, under new guidelines published by the Association of British Insurers.
The move by the ABI, whose members control one quarter of the UK stock market, is seen as a highly significant move which may help to put CSR onto the boardroom agenda in companies that had previously not taken it seriously.
The guidelines encourage companies to confirm in their annual report that they have assessed the risks to their business from external social, ethical and environmental issues. The ABI has also published "Investing in Social Responsibility: Risks and Opportunities" by Roger Cowe, new research which illustrates the business case for CSR.
Peter Montagnon, ABI Head of Investment Affairs, said at the launch "these guidelines bring concerns about social responsibility into the mainstream of investment thinking and practice. We are anxious to avoid unnecessary prescription or the imposition of costly burdens. Our focus is on enhancing value in companies through effective response to risks. Companies and shareholders will of course be able to go further if they wish." (ABI)
10. US ethicist labels tobacco 'rogue industry'
Tobacco manufacturers have been part of "a rogue industry" that violated the basic principles of business ethics for at least four decades, Thomas Donaldson, a professor at Wharton School, testified at a class-action lawsuit in West Viginia, US.
Donaldson suggested that the industry had actively discouraged science that could have made cigarettes safer and discredited researchers who delivered bad news. Companies had secretly agreed to not compete with each other on safety issues, thereby discouraging any health-related scientific breakthroughs and failing to live up to their corporate responsibility to learn all they could about their products.
Under cross-examination, he was forced to concede how little he knew about what the tobacco companies say were many attempts to develop less hazardous cigarettes.
The class action, against R.J. Reynolds, Philip Morris, Lorillard and Brown & Williamson, claims that the companies manufactured a defective product that exposed the smokers to a hazardous substance long proven to cause lung cancer, emphysema and chronic obstructive lung diseases. (AP / Charleston Gazette)
11. Hermes denies supplying weapons to Sudan
Slovak arms exporter Hermes has responded to allegations of exporting explosives to Sudan with a categorical denial. The allegations - that Hermes rerouted its explosives in 1998 from the stated destination of Chad, to Sudan - were published in the German newspaper Handelsblatt.
The company suggested that it had delivered the goods to its customer at Bratislava airport, at which point its obligations ended. It did not know anything about the subsequent alleged transport.
According to Handelsblatt, UN weapons inspectors found that in 1998 and 1999 there were several similar exports linked to Slovak companies Hermes and charter flight operator Slovtrans Air. (TASR-SLOVAKIA)
12. Suppliers hit Kmart for aggressive tactics
Kmart suppliers have been pressured over recent months to give it cash back and to make other moves that will support the discounting giant's bottom line at their expense. The accusation comes after a group of the company's suppliers agreed to share their complaints whilst retaining their anonymity.
The accusations include the suggestion that Kmart has obstructed or delayed payment, and also that the company has actually demanded money back on the grounds that products did not produce the desired profits. Each of these demands has been laced with the suggestion that noncompliance would result in less business in the future.
The pressure is currently on Kmart. Charles Conaway, the chief executive, promised over a year ago that he would turn the company around in two years. The sudden emergence of these complaints suggests that his programme may be failing to produce the desired results. The company's stores remain persistently in second place to the performance of Wal-Mart. (NY Times)
13. New Zealand: Waste Management earns top marks for environmental disclosure
Waste Management NZ has published a ground-breaking report, following a $100,000 year-long review and audit of its environmental performance by independent environment watchdog Guy Salmon. Although it was published on a "warts and all" basis, the company emerged from the exercise with very few visible warts.
The report showed the company to be a zero net emitter of greenhouse gases, and suggested that its largest landfill sites, near Auckland, Redvale and Whitford, operate to a high standard in terms of their impact on the environment. Periodic odour problems came out as the most serious complaint of a minority of people in the host communities.
In comparison, two-thirds of landfill sites in New Zealand have no liner or leachate collection. The absence of national standards has enabled a generally low level of expectation and performance.
Waste Management, as a founding member of the New Zealand Business Council for Sustainable Development is committed to developing best practice and showing the business benefits of this.
Although the report was expensive to commission in this first year, the cost for subsequent reports should halve, according to the company. (Stuff.co.nz)
14. UK's Prudential hit by record fine for pensions mis-selling
The UK insurance company Prudential has received a record fine from the Personal Investment Authority relating to the pensions mis-selling by the company in the 1980s. The company was deemed by the Authority to have "failed to progress the review of priority cases in a timely manner" by not making prompt compensation payments to policy holders who had already retired.
According to the authority, it was unacceptable that it would take Prudential up to six months to review a case. The company had also failed to keep records of many of the cases. (BBC)
15. Australian investors look for ethical approach
A recent poll suggests that, although most Australians invest in a company for a good return, nearly two-thirds also consider their purchase of shares to be conditional on the company's activities.
The survey, carried out by Irving Saulwick & Associates, reviewed the attitudes of 1000 shareholders across the country, and concluded that women were more likely than men to consider social responsibility when buying shares. Young people rated environmental protection and corporate citizenship ahead of generating returns for shareholders.
However the finding which generated the most alarm for some was the high level of cynicism about the conduct of company directors. Only a minority believed that directors act in the best interests of shareholders or other stakeholders - and this attitude was particularly reflected amonst small shareholders.
However, the level of shareholder activism in Australia is low. Only 6 percent had spoken at an AGM and only 18 percent had spoken to the company about their concerns. The most common reaction to unhappiness with the way the company is acting is simply to sell their shares.(Sunday Times, Australia)
16. Employees want fairness above all
A new study of four large companies suggests that the general perception of fairness in a company is the single most important requirement for employees to believe that the company has a socially responsible approach. Moreover, that perception is then crucial for any active participation - if employees believe the company does not treat them fairly, they are much less likely to report unethical behaviour or to seek to keep their own standards high.
The study, which was carried out by Linda Trevio, professor of organisational behaviour at Pennsylvania State University's College of Business, saw a correlation between the perception of an ethical company and a decrease in employees calling in sick, misusing their job time or padding expense accounts. (Christian Science Monitor)
17. Companies line up to shun trade with Burma
Three major US companies have announced the instigation of bans on buying or selling products from Burma on account of the widely acknowledged practices of forced labour and human rights abuses by the country's ruling military regime. The companies - Crate and Barrel, Jos. A Bank, and Phillips-Van Heusen (PVH) join twenty other corporations including Wal-Mart, IKEA, Perry Ellis, Costco, TJX, and Williams Sonoma that have forbidden sourcing from the country in the last 15 months.
PVH was singled out for particular praise by the Free Burma Coalition (FBC). The company has refused to source goods from Burma for some time, but recently acquired rights to the Van Heusen label, which has done just that. The company lost no time in bringing its subsidiary in line, leading the FBC to declare that "PVH is a model of what responsible companies should do in regards to Burma." (FBC)
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Drug abuse - the world changes yet again
Anyone who has followed with interest the previous row over patents for AIDS drugs must be bemused at recent events. At the very least, certain governments have shown themselves to be guilty of considerable hypocrisy - at worst, the whole foundation that supports the development of life-protecting drugs is at risk.
On one level, the contrast is stark. When faced with the AIDS devastation which is killing millions of people a year in much of the developing world, a number of governments - principally the US and Canada - vigorously defended the patent rights of the drug companies involved. The negotiated conclusion, that many of those companies agreed to make their drugs available for cost price, was the right outcome, but one achieved more often through necessity - fending off the destruction of the patent system - than through enthusiasm.
Now, as we know, the world has changed. Specifically what has changed is that less than 20 people in the US have been exposed to anthrax, and 4 of those people have died. This is a tragedy for all concerned, and governments are right to take steps to stockpile the drugs that will be needed to defend against future attacks. But for this to be the trigger for the staunch defenders of the patent system to suddenly about-face - with Canada initially seeking to break the patent of Bayer's Cipro drug, and the US threatening to do the same before negotiating a hefty discount - is breathtaking.
Millions of people dying in countries that have no financial resources properly constitutes a crisis. A handful of people infected in the world's richest country may not quite outweigh that crisis on any objective measure. Particularly since the Cipro maker, Bayer, is able to produce the drug in quantities required (not to mention some of the other, similar drugs produced by GlaxoSmithKline and others which, if approved for anthrax use by the FDA, could provide effective protection as well).
The US government saved under $100m dollars through its negotiation-with-menaces with Bayer - a sum the US could rather easily afford to pay. That isn't to say the government wasn't right to seek a reduction - companies should not profit excessively from a crisis. But the fact the price reduction was achieved through a threat to the patent system takes it into a different realm of power politics.
It would be easy to stop there, and to write off the episode as a case study in poor government. However, the one factor which has fuelled the ability to put the heat on the pharmaceutical companies is that the patent system has genuinely been abused in recent years. And unless this is addressed, we could be seeing the unravelling of society's consent for the drug companies to make any kind of profit at all.
It is absolutely the case that the pharmaceutical companies have the right to profit by their research and development into solutions which genuinely enhance human well being. However, as things currently stand, patents are licensed monopoly. Just as accountants will find all sorts of way to evade taxes, so the companies have become expert at using lawful, but dubious, devices to extend the period of that licensed monopoly beyond the intended period. When that happens, all legitimacy flies out of the window.
So, for instance, a company may suddenly slap in a new patent application for the component or by-product of a drug just before its patent is due to expire. It may put in legal challenges to generics - all of which will fail, but will prolong the period before generics can come in to compete. The widespread use of such tactics - even by many of those companies whose profile on social responsibility has been relatively strong - serves to undermine confidence in patent protection overall.
So it isn't just about the governments - appalling though their inconsistencies have been. There is now a fundamental challenge to the industry to establish the framework of fair protection for innovation that is widely seen to be free from abuse. The drug companies could usefully do with banding together to set the direction for this, before it is set by just those governments whose response to events can be dictated so readily by panic and over-reaction.
But the companies will have to accept that their future as socially responsible companies (which many strive to be) cannot succeed through the abuse of a licensed monopoly. A socially responsible company does not overcharge its customers for life-supporting products (prices traditionally drop 25 percent once competition from generics has been introduced) - a fair price should be enough. That kind of resolution will really test commitment, since it will have a significant hit on the short term bottom line.
But if there were ever a business case that centred on long term license to operate - and even survival - this is it.
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Everybody's Business
David Grayson, co-author of a new book "Everybody's Business", suggests that Corporate Social Responsibility is rather like Chesterton's view of Christianity. It is not that it has been tried and found wanting; rather that too few have wanted to try!
Despite the welcome developments in recent years such as the Global Reporting Initiative, the Global Compact, Business in the Community's Impact on Society Taskforce, and the Ethical Trading Initiative; and the powerful example of the leading-edge companies such as Ford and Shell and Unipart - CSR is still disappointingly spasmodic.
Too many companies don't get it at all. More think that Community Involvement is enough. Even amongst companies starting to tackle issues like environmental performance; suppliers' labour conditions or health and well-being; it is all too often as a series of isolated, ah-hoc initiatives. Rarely are these consistently applied in a company's operations around the world or joined-up with other aspects of socially responsible business practice.
Rarer still are the businesses that see these environmental, social and economic aspects in a coherent way and manage them consistently across the business, in ways which minimise the negative impacts and maximise the positive impacts for both business and society.
"Everybody's Business: Managing Risks and Opportunities in to-day's global society" is an attempt to help busy managers around the world to make sense of big picture changes and what these mean for the way that their business has to interact with society.
It is written by two long-standing CSR practitioners - BITC's David Grayson and Adrian Hodges from the Prince of Wales Business Leaders Forum.
Reviewing the book in The Financial Times, the experienced CSR journalist Roger Cowe commented "It is a handbook for managerial action. This is "management" as any middle manager would understand it, focusing on business risks and opportunities, in a style to suit that kind of frantic employment ..."
"The most striking thing about their book", he added, "is its design. It has been produced by Dorling Kindersley, with the high production values that that implies. It is therefore like reading an upmarket cookbook replete with images, stuffed with graphs, tables and fact-boxes."
David and Adrian suggest a Seven Step Model to help managers treat CSR as an integral part of the business and incorporate it into the corporate DNA.
The first step is a trigger for action. There are thirteen common triggers. It may be an externally generated event: a media expose of conditions in the company's Third World factories or a threatened non-governmental organisation campaign against the business. The trick, however, is to get ahead of the wave - and generate your own trigger for action.
Step 2 then involves articulating a compelling business case for action appropriate to the specific business. In Step 3, a business needs to scope the critical emerging management issues it faces. Tools includes stakeholder dialogue, benchmarking, assessing business impacts and using scenarios.
Step 4 is about committing to action - which may involve changes to a company's vision and mission; new governance arrangements, and perhaps making a public commitment through signing up for something like the Global Compact or joining a business coalition promoting socially responsible business.
In Step 5, a business needs to integrate strategies - both by stretching existing policies and processes - for example, where there is a strong Risk management culture or an existing commitment to Total Quality Management - these can be extended to incorporate the emerging management issues. Almost certainly, however, there will also need to be some new strategies developed.
Step 6 is about implementation - engaging with stakeholders. For example, incorporating these issues in to job specifications, appraisals, management training and rewards systems; and addressing community needs.
And finally Step 7 - measuring and reporting on impacts that the business has - and using these as a trigger to start the process again.
Everybody's Business is published by Dorling Kindersley and The Financial Times, in partnership with Business in the Community and The Prince of Wales Business Leaders Forum, and sponsored by the European public affairs consultancy: EPPA.
It is available in the UK from November 1st. The US/Canadian edition will be launched in February; and the book will be launched in Australia / New Zealand at the end of February. There will be several other language editions in 2002. Meantime, interested readers around the world can obtain the book from: http://www.dk.com/everybodysbusiness or http://www.amazon.co.uk
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