Business Respect - CSR Dispatches No 51 - 9 Mar 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 review the history of corporate social 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/51.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

As we approach the second year anniversary of Business Respect, we pause to reflect on the fact that during its life it has been produced - without fail - every two weeks. Not that we imagine that the 2500 or so readers sit poised by their computers every fortnight waiting for it to come through - but when so much on the internet promises "content coming soon" reliability seemed to be a key part of the package.

That reliability sometimes comes at a price - and Mallen has had a particularly lively time over the last fortnight, making the production of this issue painful indeed. There are sometimes just not enough hours in the day, and apologies to those who might have hoped for responses to correspondence this fortnight and found them not forthcoming. But here we are anyway. Still reliable by the skin of our teeth!

We were helped this time in no small measure by the excellent, thoughtful and informed response to the piece on the Shell Canada report from Alice and John Tepper Marlin. We knew that dropping that comment about whether the Shell Canada 1991 report was the first of its kind nothing would more quickly bring extra information out into the light!

Thanks to Alice and John for the response - and for agreeing to let us use their words for the main feature this time around.

No thanks, however, to the passing visitor to the website who found a way to bypass the 'only vote once' mechanism on the website poll, and proceeded to vote for one option 264 times. Needless to say, the illegitimate votes have been removed from the final count. We hope that person's search for definitions of social responsibility at the Ask Jeeves website was fruitful during the occasion of his or her visit - if a return visit is required, s/he will find the IP address of the computer used has been blocked from the site.

So the final - corrected - results are as follows:

How many social and environmental reports by companies did you read in detail last year?
Less than five 244 (69.91%)
Between five and twenty 68 (19.48%)
More than twenty 37 (10.6%)

There were 349 total votes. Thanks as always to those who took part. We asked for any comments last time from those who found themselves voting for the 'more than twenty' option. Jean Knight from South Africa responded. "Yes, I read over 20 reports and more. This was because I have just completed my MA degree and my topic was corporate social responsibility and HIV/AIDS in South Africa. Hence, the heavy reading for my research over the past 6 months or so. But now I have my life back (my dissertation is catching the night flight to the UK today!), so if you do a survey next year my response may be different, 'though I expect my heightened interest in the subject since my studies may still keep me in the middle to high bracket."

Jean adds "Thanks for all the Newsletters during my studies, they were very helpful". We've noticed a growing number of links to the website from academic institutions, and are glad that the resource there is useful. We do get approached from time to time with specific questions from students looking to identify resources. We try to help where we can, although questions involving detailed response are rarely able to be accomodated.

This week, of course, Business in the Community is launching the Corporate Responsibility Index - the first such voluntary public ranking exercise on the broader issues. The response to the index was a lot higher than the responsible bods at BITC had been expecting, and if it gains acceptance it could become extremely influential on how the issues are discussed at the boardroom level of the top companies.

You might want to nuzzle on over to http://www.bitc.org.uk around Wednesday / Thursday to see how it plays out. Whatever else it is - it won't be boring.

Mallen Baker
Vanessa Wood
editors@mallenbaker.net

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CSR News 9 Mar 2003

Ahold problems mount as Deloitte Touche disavows early audits

Royal Ahold, the Dutch company that has sent shockwaves across a European establishment that had predicted that 'Enron couldn't happen here', has raised further questions about how far back its problems go.

According to the company, its accountant Deloitte Touche Tohmatsu has said that it no longer stands behind its 2000 and 2001 audits for the company. This suggests that irregularities go back further than previously thought.

Accounting problems at US Foodservice had been stated as leading to an overstatement in corporate earnings by around $500m. The latest suggestion - made in a filing with the Securities and Exchange Commission - takes the potential irregularities to the year that Ahold actually bought US Foodservice.

US: Illinois University concerned over Coca-Cola deal

The University of Illinois has said it has concerns over its exclusive contract with Coca-Cola to provide beverages on campus, in the face of complaints from students and activists around the company's alleged links to anti-union violence in Columbia.

"We are concerned about these human rights issues, because our name is aligned with this company," said Associate Chancellor Larry Mann. University officials have suggested that the company appoint an independent monitor to look into the issue.

According to activists, workers at Coca-Cola plants have been tortured, kidnapped and threatened by paramilitary groups with the company failing to adequately protect them.

Coke has consistently described such accusations as "baseless". "The charges seem calculated for shock value and made in the hope of furthering political and social objectives having nothing to do with the beverage industry in Colombia, or even with the specific allegations underlying the complaint," Coke spokesman S'bu Mngadi wrote in a response to inquiries about the allegations. (News-Gazette)

Ryanair hit for misleading ads

Ryanair has been indicted in Denmark for publishing misleading price information in their adverts.

In particular, the company is accused of publishing information on prices that avoided mention of the fact that taxes and airport fees were not included.

Ryanair was reprimanded last year by the British Advertising Standards Authority for similar statements. (Business World)

BT workers protest at Indian call centres

The Communication Workers Union (CWU) has criticised BT for what it describes as "exporting" hundreds of jobs to planned call centres in India amongst a backdrop of staff protests at call centres across the UK.

BT has confirmed the plan to open two new call centres in Delhi and Bangalore. The move will create around 2,200 jobs in India during the next year. It has nevertheless denied that the move will require compulsory redundancies in the UK.

Given the generally high turnover figures for call centres in the UK, it seems feasible that the company could reduce numbers by around 2,000 (out of around 16,000) without lay-offs. (Ananova)

Scottish Amicable fined for mis-selling

Insurer Scottish Amicable has been fined £750,000 for the mis-selling of mortgage endowment schemes during 2000 - a period that the Financial Services Authority says saw the financial firms all forewarned of the danger.

Customers were misled by advisors working for the company, who failed to make clear that endowment mortgages could potentially fail to pay off the full amount of a homeloan. The FSA blamed the problem on faults in Scottish Amicable's sales systems.

"The failings arose because advisers did not place appropriate emphasis on identifying whether a customer was prepared to take the risk that their mortgage might not be repaid at the end of the term," said the FSA.

Other groups Abbey Life and Royal Scottish Assurance have already been fined for similar offences. (BBC)

British American Tobacco under human rights pressure

Human rights groups in Asia are pressing British American Tobacco (BAT) to withdraw from a joint-venture partnership with the Myanmar government. Australia's Union Aid Abroad organisation has said that BAT's involvement comes against a backdrop of forced labour in Myanmar increasing.

The venture - Rothmans of Pall Mall Myanmar - is 40 percent owned by a government-owned company. It became part of British American Tobacco four years ago. BAT insists that it will retain its stake, and says that contributing to the economy in the country helps to improve the protection of human rights.

The controversy follows considerable publicity around the company's deputy chairman Kenneth Clarke, whose letter expressing some disquiet around Myanmar was released to the press by the Burma Campaign UK.

Talisman insists its exit from Sudan is on course

Despite a series of delays and set-backs, Canadian energy company Talisman Energy has said that its proposed sale of its stake in the Sudan is to go ahead. The company is keen to bring to an end a chapter of controversy around its presence.

"Although there have been delays, completion of the Sudan sale is progressing," the company said in a statement.

The Swedish oil exploration company Lundin Petroleum is considering reducing its investments in Sudan, but has ruled out a total withdrawal. (BBC)

Nissan developing fuel cells for environmentally friendly vehicles

Nissan Motor Co plans to jointly develop fuel cells with U.S. aerospace group United Technologies Corp according to the Nihon Keizai Shimbun. The move comes after other Japanese companies, such as Honda, have led the charge in the race to develop viable, clean alternatives to the standard internal combustion engine.

Last year, Yoshihide Munekuni of Honda said that he would use his chairmanship of the Japan Automobile Manufacturers Association to promote fuel cells. Mitsubishi and Toyota made similar statements even earlier.

Problems so far focus on the ability to produce vehicles using the new technology at a realistic price. Nissan plans to invest 85 billion yen ($723 million) in research and development over the next five years to commercialise fuel cell vehicles. (Reuters)

Mattel's corporate compliance model spawns independent monitor

An Independent Monitoring Council created by Mattel to monitor the company's compliance with its Global Manufacturing Principles code of conduct is to become a new organisation offering a similar service to other corporations.

The International Centre for Corporate Accountability (ICCA) will absorb the activities currently performed by its predecessor and expand on them to encourage and assist other multinational corporations to create, implement and arrange independent monitoring of codes of conduct.

"The creation of ICCA is an excellent step in the development of independent monitoring and verification programs; and its broadened activities provide an opportunity for many companies to benefit from this model," says Robert Eckert, CEO of Mattel. ICCA will also undertake independent field research on aspects of corporate governance and accountability that normally fall outside the purview of corporate boards of directors, and engage in dialogue with a wide range of stakeholders.

Corporate disclosure benefits needs to spread across the world

A coalition of non-governmental organisations, the International Right to Know campaign (IRTK), has called for the benefits of corporate disclosure legislation to spread across the world. Citing the impact of the US Toxic Release Inventory on the quantity of emissions produced by American companies, the group says that a global approach is needed to stop the potential for more disasters like the chemical leak at Bhopal.

IRKT has produced a report to outline the positive benefits of disclosure, although it has focused on case studies of bad practice. The McDonald's case study alleges the use of child labor in China to produce its Happy Meal toys, the Nike case study focuses on labour rights in Indonesia, and the Unocal case study discusses human rights abuses in Myanmar. (socialfunds.com)

No clear "owner" of CSR within companies

According to the Pielle Consulting Group there remains no clear centre within businesses of CSR-related activities. The findings, given in a report to be launched at an upcoming international conference of the World Council for Corporate Governance, surveyed around 200 companies on their corporate governance practice.

Accountability for CSR often rests either with a specialist committee of the board, the corporate communications or public affairs department, or the board itself.

Other findings of the report included that 80 percent of the respondents believed that corporate governance would continue to grow as a high priority. However, 30 percent who undertake a social audit have no reali system in place to use the findings to drive improvements. (Euractiv)

Taco Bell targeted on supply chain labour issues

US fast-food company Taco Bell is being targeted by activists for alleged "tolerance of labour exploitation by its suppliers".

The Coalition of Immokalee Workers (CIW), a Florida-based farm workers organisation, is holding a 10-day hunger strike outside Taco Bell's headquarters in Irvine, California.

Amongst the accusations, the group suggests that Taco Bell produces tomatoes via the labour of people employed at sub-poverty wages with "no right to overtime pay, no right to organise without fear of being fired, no health insurance, no sick leave, no paid holidays or paid vacation, and no pension".

CSR FEATURES from the Internet

Back to petroleum - 8 Mar 2003 FROM National Post

For two years, the world's second largest hydrocarbons producer spent many dollars on a clever public relations and advertising campaign to convince consumers that BP no longer stands for British Petroleum, but for Beyond Petroleum.

One ad proclaimed, "We're one of the largest producers of natural gas ... and are investing in the new energy sources of the future -- hydrogen and wind. It's a start." Another tried to get beyond the guffaw test with the line: "We believe in alternative energy. Like solar cappuccino."

Read full story

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A brief history of social reporting

Article by Alice and John Tepper Marlin

We are together teaching a course for MBA students at NYU's Stern School of Business on "Models of CSR".  We cover in our class and our textbook the subject of corporate reporting, so we were interested in the article describing a 1991 Shell Canada report as being the first-ever new-style social/environmental report (Business Respect No. 49).  It suggested that this was the first combined social and environmental corporate report, a few years ahead of the Body Shop.  It said that in 1991 the terms CSR and "stakeholders" were not in common use. 

We respectfully take issue with this view of CSR history.  The term CSR was in common use in the early 1970s (although seldom abbreviated), and the term "stakeholders" was used to describe corporate owners beyond shareholders at least as long ago as 1989.  More generally, the social/environmental report is a second-phase report and the third phase of CSR reports is by far the most interesting for reasons that we shall suggest. 

The first phase of CSR reporting was composed of advertisements and annual-report sections in the 1970s and 1980s that paid homage to the environment the way a person might throw a coin into a fountain along with a wish.  The reports were not linked to corporate performance.  Leaving aside the "green-wash" reports that were disinformative and were also labeled "eco-pornography," there were a few isolated corporate efforts, such as that by Abt & Associates in 1972, to add an environmental report to its annual financial statements. 

The Abt report was pioneering, but it was also idiosyncratic.  Its concept of social responsibility was strictly related to air and water pollution and its financial auditor disclaimed any responsibility for the data on the basis that no standards had been introduced for such audits.  It also rashly attempted to reduce everything to a dollar bottom line.  So one of us (John Tepper Marlin) wrote an article for The Journal of Accountancy in February 1973 suggesting ways in which accountants could measure pollution; it included a model environmental report and hypothetically added an Auditor's Opinion.  We also contributed a joint article to the first issue of Business and Society Review suggesting how International Paper could have handled and should handle environmental issues in its annual report.

The second phase of CSR reporting, of which the Body Shop and Shell Canada are examples really began with Ben & Jerry's, which in 1989 commissioned a "social auditor" to work with the B&J staff on a report covering 1988.  It was an extraordinary move by B&J.  The social auditor" was given free rein to interview anyone in the company for two weeks, on any day or night shift.  The social auditor visited not only the main ice cream factory but also a smaller one that made "Peace Pops" and other special products.  The social auditor was also encouraged to speak with suppliers such as their dairy processor, and with public and private representatives of the community. 

This social auditor recommended that the report be called a "Stakeholders Report" (the concept of stakeholders existed but this was possibly the first-ever report to stakeholders) and that it be divided into the major stakeholder categories: Communities (Community Outreach, Philanthropic Giving, Environmental Awareness, Global Awareness), Employees, Customers, Suppliers, Investors.  Suppliers had not previously been thought of by B&J as a stakeholder.  B&J prepared the Stakeholders Report with the social auditor's input and the social auditor then appended a "Report of Independent Social Auditor" and signed it, saying it was his "opinion that the Stakeholders Report fairly describes the performance of the company in the area of social responsibility for the year 1988 with respect to the five stakeholder groups" (this social auditor was John Tepper Marlin). 

To our knowledge, this is the first of what Mallen called the New Model corporate reports.  It meets all your definitions of such a report.  After this first social audit in 1989, B&J continued to issue annual social reports, rotating to different social auditors as they sought to develop the concept.  Improvements were made both in B&J practices and in the annual social reports, but as the firm grew year after year the ways in which it was strong and the ways it was weak, as reported each year, in our view did not change greatly.  The social audits still lacked a set of generally accepted standards against which B&J performance could be measured.  B&J's social auditors were still individuals without external validation of their qualifications, or of the process they used for their audits or of the standards against which they measured the company's performance.

The third phase of CSR reporting is surely the most interesting because it introduces not only third-party certification of the reports, but certification by bodies that are accredited to certify against social or environmental standards.  It breathes life into standards and on-site inspection, because social auditors are firms and people who are accredited by environmental or social accreditation bodies (or by both).  The new phase makes the social auditor at the same time both stronger and more circumscribed than the independent social auditor of the B&J vintage.  The social auditor today has much more clout because large buyers are serious about wanting a facility certified, because their customers care.  No certification, no business.  Because more is at stake, the social auditing team in the new phase does not have the same latitude the first B&J auditor did to interview and to interpret.  The standards are already determined before an auditor goes in and the procedures are specified.  When a violation is found, the facility is given a chance to take corrective action.  Some of the violations are considered small, some enough to put certification in jeopardy; the auditor must say which it is.  The auditor returns to see that required corrective actions are made.  Major problems are not allowed to remain year after year.

The global leader of the new phase in the social area is Social Accountability International (SAI), founded in 1997.  The first facility certified against its multi-stakeholder global standard was an Avon factory in New York State, on January 1, 1998.  Other pioneers on the environmental side were the Forest Stewardship Council, the International Federation of Organic Agriculture and the Dutch Max Havelaar Foundation, now FairTrade.  Together, these groups have formed the International Social and Environmental Accreditation and Labeling (ISEAL).  The formation of ISEAL is very significant because it is an international group of standard-setting and accreditation bodies that have joined together to help make social and environmental standards meaningful, widely recognized and of a high quality.  SAI alone has so far accredited nine certification bodies (organizations of auditors), with thousands of social auditors at their disposal. 

The three phases of CSR reporting overlap with the dating of the three "waves" of media coverage of CSR issues by Sustainability, because both were influenced by changing economic conditions (the preoccupation of corporations with oil shortages and inflation in the late 1970s preempted much progress on CSR issues) and by events (such as the Exxon Valdez oil spill). 

This social auditing work now adds up to a lot of business that accountants could have had if they had followed up on the suggestions in the February 1973 article in The Journal of Accountancy.  Not until 2002 did two of the Big Four accounting firms, KPMG and PwC, jointly sign a Verification of the 2001 Shell Report.  But there was an obstacle in the way of traditional accounting firms going this route.  The key to the new social audits is that certification auditors are accredited, with regular on-site inspections of their certification practices.  Financial auditors in the United States never have been subject to accreditation or investigations of on-site practices by an accreditation body ("peer review" is not a long-term substitute).  The new Accounting Oversight Board has the power to do what accreditation bodies do, i.e., remove the right of an auditor to certify against a standard.  But until this new Board asserts such power, financial accountants and auditors operate less rigorously than social auditors. 

Thank you for inspiring us to review the history of CSR reporting.  We may not have it all exactly right, but we think this is a marginal improvement on the perspective you provided in your last Dispatch.  This is not to take anything away from the good work of Shell Canada or Shell anywhere.  Shell has got the message, but we don't believe they were the first.

Alice Tepper Marlin, alice@sa-intl.org
John Tepper Marlin, Ph.D., jtm6@nyu.edu
Adjunct Professors of Markets, Ethics and Law
Stern School of Business, NYU

Their day jobs: Alice TM is President of Social Accountability International in New York City.  John TM serves as Chief Economist for the currently  elected Comptroller of the City of New York and held this position under the  two previous Comptrollers.

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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