Business Respect - CSR Dispatches No 47 - 12 Jan 2003

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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 ponder the future of CSR reporting if no-one actually reads the reports, and we review CSR Europe's Impacts of Reporting.

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/47.html.

Copyright 2002 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 Supreme Court finally came through for Nike (see news item). There remains a chance that the crazy logic implied by the Californian court decision on Kasky v Nike will be overturned. Without believing one way or the other in the veracity of the company's statements regarding its previous practices, this has to be a good thing.

We know for a fact that a number of companies - some of whom constitute seriously committed CSR reporters - have been watching the Nike case with deep concern. There is little doubt that should the Supreme Court end up confirming the original decision, there will be less disclosure as a result. Hardly a desirable outcome.

Of course, the benefits of disclosure are all rather theoretical if no-one reads the reports, and there's no real consensus on what should be reported. This has been a regular theme in this newsletter - but this issue we take the opportunity of the recent publication by CSR Europe of its 'Impacts of Reporting' publication to revisit some familiar territory - that at last seems to be gaining attention on a broader scale.

Meanwhile, the Nike announcement probably marks the point when it's appropriate to close the vote we've had running on the website for the last few weeks. The final result stands as follows.

What companies like Nike say in their CSR reporting should be protected by the same free speech rules as those covering their critics:

Agree 181 (63.07%)
Disagree 72 (25.09%)
Not Sure 34 (11.85%)

There were 287 total votes. Thanks as always to those who took part.

Since the question for this time has moved to - just how many people read these CSR reports, we thought we would have an informal survey of website visitors / Business Respect readers. So the new vote from today is: "How many social and environmental reports by companies did you read last year?". Possible answers range through 'less than five', 'between five and twenty', and 'more than twenty'. We await the outcome with bated breath!

In the meantime, we hope you've all had a good start to 2003.

Mallen Baker
Vanessa Wood
editors@mallenbaker.net

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CSR News 12 Jan 2003

President Bush boost funding to fight corporate fraud

US President George Bush has said that his budget for next year will propose a 73 percent increase to help the Securities and Exchange Commission to fight corporate fraud.

Mr. Bush also disclosed that he would propose spending increases for the Justice Department to expand corporate fraud investigations.

"The S.E.C. and Justice Department are the referees of corporate conduct," Mr. Bush said in his weekly radio address. "Under my budget they will have every resource they need to enforce the laws that punish fraud and protect investors."

The announcement gave some expression to the importance given to the issues by the administration, since the budget is largely expected to demand freezes or cuts in many other areas. During the last year, the White House administration had largely resisted attempts by Congress to win such spending increases for the commission.

Earlier in the week, the President had launched a jobs and growth plan, during which he said "Corporate greed and malfeasance cause innocent people to lose their jobs, their savings, and often their confidence in the American system." (NY Times / White House)

Pakistan Tobacco stuns critics with advertising ban

Health activists have attacked Pakistan Tobacco for its move to halt advertising in the electronic media, which they say is a cynical measure aimed at scoring social-responsibility points to dodge tougher regulation.

Pakistan Tobacco, a subsidiary of British American Tobacco, said that it had decided not to use television and radio advertisements in response to "the reasonable expectations of society".

"Many people, including parents, are concerned about the influence of advertising on children (and not just tobacco advertising), even though there is ample evidence to suggest that tobacco advertising is not the main cause in the decision of adults or youth to smoke - the key drivers are youth culture, peer-pressure and family influence," it said.

Anti-tobacco campaigners, who have long campaigned for a total ban on tobacco promotion in the electronic media, found themselves unprepared to respond to the measure. "The Pakistan Tobacco decision is another of its ploys to delay the adoption of rules and regulations for the recently promulgated ordinance on tobacco control," said Dr Ehsan Latif, who heads the World Health Organisation-funded Tobacco Free Initiative Pakistan.

The Pakistan Health Ministry welcomed the company's decision, and criticised the activists' arguments as being meant to oppose for the sake of opposition. (Asia Times)

US: California sues Wells Fargo for overcharging

State regulators in California have accused Wells Fargo & Co of willfully overcharging more than 15,500 customers to the extent of over $850,000 through hidden interest rates on so-called instant loans.

The California Department of Corporations lawsuit said that the overcharges were first detected in the summer of 2001 and that Wells agreed to refund nearly $536,000 to its borrowers and promised not to overcharge again.

But a subsequent state audit in April found that Wells Fargo Financial had continued to overcharge the same customers by a total of about $338,000.

"Wells Fargo sincerely regrets this unfortunate situation, which was caused by a processing error," the company said in a prepared statement. "We have fully reimbursed all affected customers." (San Francisco Chronicle)

US Supreme Court agrees to review Nike case

The Supreme Court has agreed to review the California decision holding Nike potentially liable for all statements it may make about its social and ethical performance by labelling it as 'commercial speech'.

The California Supreme Court narrowly agreed last year to reinstate a suit against Nike brought by Marc Kasky under the state's unfair trade practice and false advertising law. The decision embraced a wide definition of 'commercial speech' under which companies could be denied First Amendment protection that was fully accorded to their critics. In response to the finding, Nike has ceased its programme of corporate responsibility reporting and other companies are watching the case closely.

The Supreme Court decision had been by no means assured, given that the original case had not yet proceeded to trial in the lower courts. The decision to take the matter suggests that the legal issues are seen as unusually important. The appeal will be heard in April.

If the Supreme Court finds that Nike's statements are political rather than commercial speech, the company will be covered by the First Amendment and the Kasky case will almost certainly fall. If they do not, all companies that do business in California may seek to re-evaluate their approach to making public statements on their social responsibility.

Indonesia: NGO could be taken to court for cartel accusations

Monopoly Watch, a non-governmental organisation in Indonesia, could end up in a civil lawsuit over its refusal to retract its report of complaint to the Business Competition Supervisory Commission (KPPU) that four foreign cement companies in Indonesia were operating as a cartel.

Monopoly Watch filed the report with the commission, alleging possible cartel-like operations by the four foreign cement companies: Mexico's Cemex SA de CV, Heidelberger of Germany, Holcim of Switzerland and Lafarge of France.

Lubis lawyers, which represents Cemex Indonesia, had earlier petitioned Monopoly Watch to withdraw its complaint and to make a public apology for defamation or face a lawsuit. The NGO has refused to back down.

Meanwhile, according to executive of the commission M. Nawir Messi, KPPU ruled out a possible investigation, saying that the report lacked evidence. However, it was put on the commission's watchlist. (Jakarta Post)

UK: Imperial Tobacco denies accusations of smuggling

Imperial Tobacco rejected accusations by the House of Commons public accounts committee that it has failed to co-operate with customs officials to prevent smuggling. The committee's report found that the company had stepped up exports to "unusual markets" such as Afghanistan, Andorra and Moldova, even though there was no market for their cigarettes there.

The committee suggested that customs officers who asked 'legitimate questions' about an increase in products being smuggled back into the UK were 'fobbed off'.

Gareth Davis, chief executive of Imperial Tobacco, said that the report was based on historical data, and did not reflect the "high level of co-operation that exists at all levels with HM Customs & Excise."

He went on to attack UK government policy towards the taxation of tobacco. He said: "The actions we have taken in conjunction with Customs have cut seizures of our cigarettes by more than half, but only the Government can tackle the root cause of smuggling, which is the excessively high level of UK tobacco tax." (BBC / Imperial Tobacco)

Fairchild CEO charged with misuse of funds

Fairchild Corp has said that French authorities have charged Chief Executive Jeffrey Steiner with allegedly facilitating and benefiting from the misuse of funds of the French oil company Elf Acquitaine.

Steiner has said that the charges have no foundation, and will be contested.

Fairchild distributes aircraft parts to commercial airlines and aerospace companies, and owns and operates a shopping center in New York.

Former French foreign minister Ronald Dumas was found guilty of corruption in May 2001 for his part in a scandal over funds from the oil company Elf Acquitaine. (iWon / Reuters)

UK: McDonald's switches to organic milk

McDonald's is to switch to using cartons of organic milk in its UK outlets. It said the move was a "natural progression", having already changed to free-range eggs in its breakfasts.

The company already sells organic milk and ice cream at its outlets in Sweden. The milk will be semi-skimmed and cost the same as for the current non-organic milk.

McDonald's said: "Up until recently there hasn't been enough supply of organic milk in the UK but it's something we are able to do now.

"We estimate that the milk we sell will represent 3.4% of the total market for liquid organic milk in the UK." (Ananova)

Philippines: SEC welcomes corporate accounting bill

The Securities and Exchange Commission has praised a proposed bill seeking to improve the country's financial reporting system post-Enron.

Under the proposed bill, the public company accounting oversight board will establish auditing, quality control and ethical standards relating to audit reports.

The bill seeks to regulate corporate abuses by increasing corporate responsibility. It also makes it unlawful for any person, company or accounting firm to shred or alter corporate documents while under investigation. Destruction or falsification of corporate files is punishable with imprisonment of up to 20 years. (Philippine Star)

Small firms sweep the board at Business Ethics awards

For the first time in its 14 years of history, the Business Ethics Awards in the US has awarded recognition to three small firms, saying that none of the large company entrants had measured up with cutting edge initiatives.

The winners were:

Fastener Industries in Berea, Oh., winner of the Employee Ownership Award, for its 20-year commitment to democratic governance by employees.

White Dog Café in Philadelphia, winner of the first Living Economy Award, for being an exemplar of business that is locally rooted, human scale, stakeholder-owned, and life-serving.

New Belgium Brewing Co. in Ft. Collins, Colo., winner of the Environmental Excellence Award, for its dedication to environmental stewardship in every part of its brewing process.

It may be "the end of the PR phase of corporate social responsibility," wrote Business Ethics publisher Marjorie Kelly, with the judging panel "grown weary of the look-alike good-guy news major firms continue to pump out." (Business Ethics Magazine)

Japan: Companies urged to cut links with gangsters

Police have urged four major Japanese companies to cut long-standing ties with firms linked to a major underworld syndicate that officials suspect effectively amounted to payoffs.

The four companies, Tokyo Electric Power Co (TEPCO), Nippon Steel, NKK and Toppan Printing, have admitted they conducted transactions with two firms linked to the crime syndicate Sumiyoshi-kai. They claim that the business conducted was legitimate.

Each of the companies paid an average of between 10,000 yen and 250,000 yen a month. Nippon Steel said it aims to terminate its deal at the end of March. The other companies said they have already done so.

A spokesman for Tepco said that the company did not know the exact history of the business deal, but it appeared to have been a normal transaction conducted at standard market prices. After investigation, the company had concluded the arrangement was "inappropriate".

(The Japan Times)

Bristol-Myers Squibb settles antitrust claims

Bristol-Myers Squibb has agreed to a $670m settlement to claims that it used illegal tactics to suppress generic competitors for its patented drugs and therefore to inflate its profits.

The company's agreement is part of ongoing negotiations to resolve lawsuits in which dozens of US states sought compensation for drug overcharges relating to BuSpar, an anti-anxiety drug, and Taxol, a cancer drug. The litigants argued that the company had knowingly made false statements to the US Food and Drug Administration about the scope of a new patent for BuSpar, preventing generic drug manufacturers from making cheaper versions available.

Bristol-Myers Squibb said in a statement that it stands "behind its actions and believed they were entirely lawful". (Austin Business Journal)

KFC targeted by animal welfare campaign

KFC, the US fast food company, has rejected allegations made by People for the Ethical Treatment of Animals (PETA), which has launched a 'KFCcruelty' campaign.

PETA argues that KFC "continues to support the worst abuse of chickens", adding that "the corporate has shown no willingness even to consider eliminating the most egregious abuses". The organisation has launched a campaign website urging its supporters to leaflet and demonstrate at KFC stores.

The company said that it engaged outside experts to conduct regular unannounced audits at its poultry suppliers to ensure full compliance with the company's Animal Welfare Policy.

"KFC is committed to the well-being and humane treatment of broiler chickens," said Dr. Joanne Plichta, Vice President, Research and Development, KFC Corporation. "Our Animal Welfare Council has established a set of quantifiable guidelines that have been implemented in our supplier processing facilities. The experts on our council have also reviewed several PETA proposals and determined that the majority of them are impractical and not based on sound science."

India: Corporate governance under scrutiny

The Securities and Exchange Board of India (Sebi) is to review corporate governance practices, with particular focus on issues around company boards and reporting.

Sebi chairman GN Bajpai said that corporates had balance sheets that far surpass those of most governments. They have a responsibility to be transparent and realise their commitment to society.

Sebi is considering a system that will provide corporate governance rating for companies. This would enable shareholders and other stakeholders to assess the functioning, value creation and value sharing of corporates.

Mr Bajpai said that corporates command a country's physical, financial and human resources and, therefore, should be judged on their commitment to society, their adherence to the law and whether their governance "suffers from jaundice". (The Financial Express)

CSR FEATURES from the Internet

Ethics: The Great Divide - 9 Jan 2003 FROM CFO Magazine

"[W]e have really everything in common with America nowadays, except, of course, language," Oscar Wilde wrote in The Canterville Ghost. Of course, that was in 1887, way before Enron, WorldCom, and "Chainsaw" Al Dunlap were around. These days, Americans and Brits differ in more than just the way they talk.

The latest proof: a new survey by transatlantic business group BritishAmerican Business Inc. (BABi) and communications company Peppercom Inc., which reveals some sharply differing viewpoints on business by U.S. and U.K. executives. The BABI questioned 300 of its members -- on both sides of the Atlantic -- on business issues, including corporate governance.

Read full story

India Inc.'s heaping the feel-goodies - 8 Jan 2003 FROM The Economic Times (India)

After slurping its way through an alphabet soup of various parameters aimed at benefiting shareholders, a post-Enron world economic order is bingeing on a new acronym - CSR, or corporate social responsibility.

It's the latest buzzword for new-age corporations the world over and, of course, for India Inc. Since greed, as the great American CEO drama has shown, is no longer quite as good as it was once supposed to be, social consciousness is the new leitmotif.

Read full story

Social responsibility can rebuild reputations - 5 Jan 2003 FROM The Boston Globe

As a former consultant for Arthur Andersen, I know firsthand the effects that accounting scandals can have. Although proposed steps to promote accurate disclosures are a good beginning, for business to effectively repair its tarnished image and regain the nation's trust companies will have to go beyond mere honesty. They will need to show that they take seriously the concerns of the society in which they operate and that they are prepared to help address them.

Surveys have consistently shown that the public cares about businesses addressing issues beyond their own profitability. A 2001 Cone/Roper poll, for example, found that 76 percent of consumers said they were likely to consider a company's reputation for supporting causes when purchasing holiday gifts.

Read full story

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Addressing the crisis in CSR reporting

2003 promises to see more companies than ever before producing social and environmental reports. This promising growth masks the growing crisis around CSR reporting.

The dilemma is hinted at by a quote given in the new CSR Europe publication on reporting from an unnamed business contributor. "We hardly get any feedback on our report that we send out to thousands of people every year. We wonder if our stakeholders actually read it."

The author of the quote is not alone. In my own experience, roomfuls of leading CSR reporting companies in the UK, in Canada and in Sweden, have all been unanimous in their deepening gloom about the value of these reports to the intended stakeholders.

Global legislation to require reporting seems unlikely. In its absence, one has to wonder just when the laws of gravity kick in. In thirty years time, companies will not still be producing reports that nobody reads. Will they in five years time, even?

As with all forms of communication, it comes down to the expectations of your audience. Certain business stakeholders expect to get their information in the form of a formal report. Many others have no intention of reading such documents - which doesn't stop them from wanting to know.

Whilst the world is debating whether the Global Reporting Initiative guidelines are the best framework for what should be reported, few have yet commented on the fact that GRI reports are no better read than the rest. It may have something of value to add to the debate, but it is clearly not 'the answer' - if answer there be.

Most literature on CSR and reporting has to date studiously ignored this fact of life - rather like the Disney cartoon character who runs of the edge of the cliff and is able to keep going only until the point he/she looks down and realises the predicament. Finally, this has changed with the publication of CSR Europe's thoughtful research on 'Impacts of Reporting'.

This publication looks at a number of factors around reporting and seeks to disentangle the processes that add real value to the participating businesses. It uses feedback from some of the world's leading reporting companies, and seeks to highlight the areas for further work in the future.

To begin with, it seeks to establish a distinction in the purpose of reporting between what it calls 'transformational' reporting and 'classical'. The 'classical' view holds that social and environmental reporting only has an impact if it changes the perceptions of the report's readers, primarily external stakeholders. This is the view feeding the aforementioned gloom amongst report-writers. It is certainly the view that will be held by many of the boards of reporting companies.

The 'transformational' view, however, is that reporting is primarily a device to drive change within the company. The process of reporting - including the very commitment to report - can impact on business decisions and outcomes.

The research is then predicated on a number of working assumptions. These are:

1. Social and sustainability reporting must be placed in a broader context in order to fully understand its impacts.
2. Pressure, strategy and values are key drivers behind social and
sustainability reporting.
3. Companies report on social and sustainability issues in order to change internal and external perceptions. Though stakeholder perceptions can be measured, the resulting change in stakeholder behaviour is more difficult to assess.
4. The impact of reporting depends on its ‘visibility’, which diminishes over time, as well as its technical quality, which improves with time.
5. The internal impact of reporting is dependent on shifts in stakeholder perceptions, but will be constrained beyond a critical point unless organisational culture and business systems change.
6. Effective reporting requires communications with external stakeholders to be targeted through different ‘pathways’.

Some of these apply to issues around traditional reporting - and how companies can seek to maintain the profile of, and interest in the exercise once the initial foray has been completed.

But particularly relevant is the conclusion that innovation in stakeholder engagement is key to success. We do not yet have the best practice examples of companies who have successfully opened up channels of trusted communication with the broad base of their stakeholders. We have experiments in the medium for reporting - and a growing preference for the use of websites. We have experiments in consultative panels, and joint initiatives with NGOs. But very little that is broadly applicable or widely replicable.

The report notes that: "Companies with decentralised cultures are more likely to have a wide variety of communications strategies around the world. These reflect stakeholders’ information requests, geographical differences and local cultures. For example, communications channels tend to be much more informal in Asia, whereas conferences and presentations are more the norm in Europe. Strikingly, many companies said they were still unclear about their key stakeholders and do not know which communication pathways were most appropriate, indicating that significant progress remains to be made in this key area. Lack of clarity on the audience can pose additional difficulties in selecting the right content."

Overall, CSR Europe's document is an excellent contribution to the debate on the way forward, and puts some good, solid company research around the rhetorical commentary of this newsletter over the last year or so! It should be required reading for company practitioners with a responsibility in this area - mainly to raise the questions you will need to ask yourself.

One thing that is for sure, the growing volume of individual company reports will over time serve to reduce their visibility as the quantity of data becomes navigable only by full-time commentators (I'm still looking for the emergence of this exciting, specialist breed).

I remain convinced that there may be value in a website portal that aggregates and brings together some of this reporting and puts it into a form that different stakeholders can review more quickly and easily. The BITC portal (http://www.bitc.org.uk/corporate-impact) is such a one - at least in genesis. It aggregates and simplifies the reporting - probably not yet with a specific focus for individual stakeholder groups. The CSR Canada project will soon have a group of businesses seeking to achieve a similar outcome. There may be others.

The one thing I remain very unclear on is the eventual importance of independent assurance in reporting. It is really impossible to know when there remains no consensus over what constitutes core data in social reporting - what is being verified? So far, all the recommendations I have seen stress the importance of independent verification. They may be right - although they usually come from organisations that provide either systems for verification or actually provide those verification services themselves.

Many of the business stakeholders trust the traditional verifiers no more than they trust the companies. It rather depends what data is aimed at whom as to how this will work out.

I do wonder if, for those stakeholders who would generally regard the 40-page reports with horror, whether there isn't a role for some sort of enhanced third-party approval. Something involving third parties that are actually trusted by that stakeholder group, but that hinges on something rather more robust than paid-for celebrity endorsement. Just a thought.

In any case, 2003 could be the make or break year for CSR reporting. Mind you, I probably said that last year as well!

We would welcome any thoughts that the significant and experienced body of readership of this newsletter might have to add!


Impacts of Reporting - CSR Europe. Available for EUR60 per copy.
See http://www.csreurope.org

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In the news from the latest issue

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

US: Proposed Alaskan mine survives people's vote

Merck accused of dressing marketing up as science

Australia: Business lobby group warns over carbon trading

India: Tata Motors threatens pull-out from West Bengal

US: Climate change resolutions making impact on companies

Japan: Details of carbon labeling confirmed

Canada: Wal-Mart has union contract imposed

India: Rising protests against factory building

US: Fraud will cost firms $994bn this year

US: American Airlines accused of safety breaches

Ghana: Call for companies to help clear up electronic waste

US: Disneyland demonstration over hotel worker benefits

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

... more news stories

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