Business Respect - CSR Dispatches No 52 - 23 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 issues around the social responsibilities of the American retail phenomenon Wal-Mart.

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/52.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 war is upon us, and as things currently stand the huge power of the US military is making short work of the opposition in Iraq. At the same time, Americans have been shocked to learn of the perception of them that exists in the rest of the world.

On the one hand, there is America the values-driven, democratic society that is trusted by merit to act as the world's policeman - and the issue behind the current dispute is the tyranny of Saddam Hussein. This is the US perspective. On the other, there is America the powerful bully, demolishing international governance standards in order to ruthlessly impose its view upon the rest of the world. George Bush was recently shocked by research that showed this latter version to be the opinion held even by many of the US's allies.

There is an interesting parallel with the subject of this issue's article - Wal-Mart. The world's biggest company, and the epitome of the American dream. Folk hero Sam Walton created a company based on being close to the customer, and focused relentlessly on efficiency to this end. As a result, something immensely powerful has been created - beyond the wildest imaginings of its founder's original hopes.

And now Wal-Mart finds that, in addition to being one of America's most obvious success stories, it has become one of the world's favourite villains. How has this happened? And can a company sacrifice on the altar of permanently low prices and retain its social responsibility?

One of the challenges is that for many of Wal-Mart's customers, low prices are a big feature of the expression of its social responsibility. We thought it would be interesting to try this out on some of the readers here. So, in time honoured tradition, there is a new website vote to this effect. It goes something like this: The most important social responsibility a company like Wal-Mart can observe is: (1) Keeping its prices low, (2) Treating its employees well, (3) Minding its impact on its local communities. Bearing in mind there is no 'all of the above' option, we will be fascinated to see how this one goes!

In the mean time, we hope that the world may become a safer and more stable place for us all very quickly.

Mallen Baker
Vanessa Wood
editors@mallenbaker.net

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CSR News 23 Mar 2003

Bhopal victims will appeal court setback

Vicitms of the Bhopal gas disaster have said that they will appeal a New York court ruling that dismissed a class action seeking damages.

Federal District Judge John Keenan said that the company had sold all its shares in the plant and used money to build a hospital in Bhopal. The company, he suggested, had done enough and too much time had now passed for further action.

This is the third time in 18 years that judge Keenan has rejected attempts by victims to seek redress for the disaster.

The gas leak at the Union Carbide plant in 1984 killed thousands of people and left many more seriously injured. It stands as one of the worst industrial disasters in the world's history.

Philip Morris hit with $10bn penalty over 'light' cigarettes

Philip Morris has been found liable for failing to effectively communicate risks attached with "light" cigarettes in a US court and fined over $10bn. The company was said to have known that 'light' and low-tar cigarettes could be actually more dangerous than the standard alternatives due to increased ventilation which would allow more smoke to be inhaled.

The company has been told to pay $3bn in punitive damages to the State of Illinois, with a further $7.1bn going in compensation to smokers of the 'light' cigarettes. Philip Morris, that had argued its cigarettes did not deceive customers since they carried the appropriate warning, has said that it will appeal the judgement.

The suit is the first of its kind, involving light or low-tar cigarettes, and involves a class action of over a million smokers.

"The decision ignores the law, facts and common sense," said William S. Ohlemeyer, Philip Morris USA vice president. "Judge Byron has awarded an outrageous amount of money to a group of smokers who claim no injury, smoked cigarettes that were always labeled with government health warnings and continue to purchase Marlboro Lights despite the claims in the case."

The company went on to point out that the original plaintiff, Susan Miles, spoke with reporters at a recess during closing arguments and said she continues to prefer to smoke 'light' cigarettes rather than full-flavored cigarettes despite the allegations in the case.

Halliburton agrees to review operations in Iran

Halliburton, the company linked with US Vice-President Dick Cheney and poised to pick up significant Iraq-war contracts, has agreed to review its operations in Iran having been told by the US Securities and Exchange Commission that it will not be given permission to drop a shareholder proposal on the subject.

The proposal had called for the creation of a Board committee to review the Iran operations. The company has now agreed to set up such a committee in return for the proposal from New York City pension funds being withdrawn.

Halliburton had asked the SEC to say it would take no action if the motion was omitted from the company's 2003 proxy - an approach that was rebuffed.

Meanwhile, the Corpwatch website reported that Halliburton is working alongside troops in Iraq providing logistical support for the war there. As always, such a role is controversial given the continuing link with the Vice-President, although the Whitehouse has denied any influence in awarding the contract.

Bayer wins drug suit on Baycol

A jury in South Texas has found Baycol innovent of marketing and design defects in its cholesterol drug, Baycol, which it pulled from the market last year.

The result was a boost for the company that had been facing huge liabilities from thousands of lawsuits associated with the drug, a fact that was reflected in the jump in Bayer stock market values over the day, up 37 percent.

The case had focused on evidence that Bayer executives were aware of Baycol's link to adverse health affects well before the decision was made to pull the product off the shelves. The company had denied wrongdoing, arguing that its actions had met Food and Drug Administration guidelines.

Bayer has settled around 450 cases, but remains exposed to the many outstanding. Shareholders have also united in a class action suit against Bayer's German parent, Bayer AG.

Bayer is hoping that the case will provide a boost to its desire to achieve out of court settlements in more of the outstanding cases.

Australia: Corporate philanthropy struggles in the face of public vilification

Australian businesses contribute over $1.5bn a year to the community only to endure the cynicism - and even vilification - of the public, according to the Business Council of Australia.

Katie Lahey, CEO of the BCA, told a conference on philanthropy that businesses remained committed to their role in the community regardless, but that this was having little impact on public perceptions - considerably beyond what might be expected even in the wake of the Enron and HIH scandals.

"An almost perverse relationship exists between the amount of effort and money that some companies contribute to the community and the level of negative feedback, rather than positive acknowledgment they receive", she said.

"What is the rationale for business – both in a commercial and moral sense - to contribute large amounts to communities which reciprocate in such a way? I think the finding in the BCA/Centre for Corporate Public Affairs study which detected a clear unease among business over the lack of acknowledgment it receives from community giving is an issue for concern."

A further challenge, she said, was that CEOs - now being required to spend more time on core ethical issues, such as governance - would have less time to spend on matters of pure corporate philanthropy.

Big Food Group backs down on £12m compensation from Guyana

With the echoes from Nestle's claim against Ethiopia barely ended, the Big Food Group, owners of the Iceland chain, have backed down having aroused the wrath of debt campaigners by pursuing a claim of more than £12m in compensation against the impoverished state of Guyana.

The company has now said that it will not pursue the claim, although people close to the company suggested there was considerable anger at being forced to give way to a basic principle on property rights.

The company's case to recover decades old debt was due to go to an arbitration hearing at the international court for the settlement of investment disputes. The debt was incurred during the nationalisation of the sugar industry in 1976.

Guyana has paid back around £6m of the original debt, but defaulted on its payment in the late 1980s.

Campaigners from the Jubilee Debt Campaign argued that the company should drop the debt altogether, seeking to draw attention to the contradiction where Guyana is granted debt relief on the one hand, only to have a private company receive some of the proceeds.

Warren Buffett: Trust will stay low as CEO pay gets higher

Warren Buffett, the billionaire investor, has said that trust in companies will remain low so long as chief executive pay continues to rise regardless of the performance of their companies.

"What really gets the public is when CEOs get very rich and stay very rich and they get very poor," Buffett said at a conference on corporate governance.

Buffett is the largest shareholder of Coca-Cola and American Express, and his views on the post-Enron responsibilties of directors have become increasingly prominent as the debate generated by the various business scandals has played its course.

"It is vital that we earn back the trust of the American public," he said. "We will get it back when we deserve it." He went on to criticise directors who gave too much authority to compensation advisors who have fed a never-ending upwards spiral based on the stock price increases of the 1990s.

Saks announces policy against purchasing from Myanmar

Saks Incorporated has announced a policy against sourcing products from Myanmar, according to the Free Burma Coalition. The company, which is the owner of ten major retail chains and 350 stores, told the NGO in a letter that it would avoid goods - "private label and otherwise" - from the country that has seen ongoing issues around human rights abuses.

Saks, with $5.9 billion in 2002 sales, joins companies like Wal-Mart, Federated, and Tommy Hilfiger as the 39th U.S. company to ban goods from Myanmar in three years.

Aung Din, the Director of Policy for the Free Burma Coalition, said: “By banning sourcing and retail of products made in Burma, Saks is taking a stand against oppression and dictatorship in Burma. We applaud their principle.”

The Coalition is now likely to turn its attention to other companies that have yet to make such a commitment, such as May Department Stores. “Why is it so easy for Saks and other major retailers to stand up for human rights but so hard for May?” Aung Din asked.

Shell chairman: Essential to take action on climate change now

Philip Watts, the chairman of Shell, has argued that society needs to respond to the threat from climate change immediately - and business can help to bridge differences on the issue.

Watts, who is also chairman of the World Business Council for Sustainable Development, said that action needed to be taken despite ongoing scientific uncertainty.

Speaking at the inaugural conference of the Shell Centre for Sustainability in Houston, he said: "Amid all this uncertainty we have seen and heard enough in Shell to say we stand with those who believe there is a problem and that it is related to the burning of fossil fuels. We stand with those who are prepared to take action to solve that problem now before it is too late and we believe that businesses, like Shell, can help bridge differences on this issue.”

However, he said, business could only act within the right policy framework, and this would require government action.

Shell has been one of the leading companies for its profile on environmental performance. Last year the company reported that it had reduced its greenhouse gas emissions by 10 percent from the 1990 level through ending routine gas venting, reducing gas flaring and improving energy efficiency.

South Africa: Workers win asbestos payout

Black miners have won unprecedented compensation from mining company Gencor, with the company agreeing to set up a trust fund worth 378m rand, with a further 40m to be added subject to further costs from legal action, to enable workers to make claims for health care and support. A further settlement is expected between the workers and Cape plc.

The settlement to the case, brought on behalf of 1,600 miners, will provide money for all those demonstrably affected by asbestos in the area of the mines.

Gencor continues to deny liability, but in any case is due now to finish a process started some time ago - selling off its remaining assets - a stake in Impala Platinum Holdings (Implats) - and shutting up shop. The process of divestment had been held up by the legal proceedings.

The settlement is the latest of a series of asbestos related cases across the world that have inflicted huge costs for problems going back decades.

Unocal adopts company-wide principles

Unocal Corporation has announced the adoption of new corporate principles covering fundamental rights, such as freedom from discrimination in employment, the elimination of child labour and freedom of association and collective bargaining.

The move was welcomed by the Amalgamated Bank, which was one of the company's investors that had urged the company to take the step in a shareholder resolution that won 32.8 percent support at the company's AGM - at the time the largest ever such vote of support recorded for a human rights motion.

Amalgamated Bank Chairman Bruce Raynor said: "The real test for Unocal now is to implement its policy -- which will require drastic steps given their operations in Burma, where oppression in the workplace is rampant and the government is complicit."

Raynor went on to say that he believed the pressure on the company would continue through the next steps - implementation and enforcement of the new principles.

Unocal has been the focus of criticism due to its business activities in Myanmar - particularly alleged complicity with the actions of security services who committed various human rights violations.

India: Pollution control charter for business

The Indian Environment and Forests Minister, TR Baalu, has launched a charter on corporate responsibility for environmental protection that will see agreed rules with industry on emissions and management practice.

The charter was launched at the Conference of representatives of Central and State Governments, Pollution Control Boards and major business sectors.

Industry sectors covered include the thermal power sector, which has agreed emission limits for new plant on particulates, the oil sector, which has focused on sulphur dioxide, and the pharmaceutical industry, where the target is other waste streams, including improved handling and storage of hazardous waste.

Other industries covered include sugar, cement, dyes, petrochemicals, metals and fertiliser producers. All have agreed to binding targets for environmental improvements by set dates over the next two or three years. (The Economic Times)

UK: Business steps up to Corporate Responsibility Index

Business in the Communiy has launched the results of its first Corporate Responsibility Index, with 122 companies participating in the exercise which ranks companies into quintiles reflecting their performance on social responsibility.

Companies in the top quintile are 3m, AstraZeneca, Aviva, BAA, BP, BT Group, Carillion, Dow Chemical Company, ISIS, J Sainsbury, Marks and Spencer, mm02, National Grid Transco, Rio Tinto, Safeway, ScottishPower, Shell International, Tesco, Unilever and Waste Recycling Group.

The index model is based on a four stage process that looks at corporate strategy, integration, management of the key issues around marketplace, environment, workplace and community, and performance & impact.

David Varney, the chairman of Business in the Community and mm02 said: "When I look back at the Index process, the one thing I am sure of is that it's not just a tick box exercise. I know from my own company's experience that it challenged our perceptions and increased cross-functional debate within the company. It made us really consider our position on a number of issues."

Chris Baldry from the National Association of Pension Funds added: "NAPF wlcomes the first Business in the Community Index of Corporate Responsibility - we hope to build on our current use of the BiE Index and to use the Corporate Responsibility results as part of the Voting Issues Service".

UK: Business chairmen oppose proposed changes on governance

Eighty two percent of FTSE100 chairmen polled have expressed their opposition to aspects of the Higgs review on corporate governance, according to the Confederation of British Industry.

The proposals concern an enhanced role for the Senior Independent Director on the board which many fear would undermine the role of company chairmen and their ability to run an effective unified Board.

Chairmen were also unconvinced that the recommendation for an independent non-executive to chair the Nominations Committee would strengthen corporate governance. Eighty-seven percent disagreed or strongly disagreed with this proposal.

Digby Jones of the CBI said: "Business backs the broad approach proposed by the Higgs Report but chairmen have got to be allowed to run an effective unified Board. My greatest fear is that the law of unintended consequences might stifle the creativity and drive that characterises so much of what is good about UK business."

Other measures contained within the recent review by Derek Higgs received a more mixed response. Fifty six percent disagreed that having non-executive directors meeting once a year in the absence of the chairman would strengthen governance. Fifty percent disagreed that disallowing the chief executive to also be chairman would lead to better board performance.

CSR FEATURES from the Internet

Corporate angels need to spread their wings - 15 Mar 2003 FROM The Guardian

Everything, it seems, is thought to be measurable these days. Even goodness. And with measurability comes judgment. And if judgment is called for, then advisers will be queuing up to offer it. This week's publication of the UK's first corporate responsibility index, by appealing to the financial markets' penchant for hard data, might just change the way that they work.

The index is the work of Business in the Community, a charitable organisation which describes its purpose as "to inspire, challenge, engage and support business in continually improving its positive impact on society." If the reaction to the index's publication is any indication, then it is certainly providing a challenge - 122 companies voluntarily provided information on their business conduct; not all have been happy with their positions.

Read full story

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Wal-Mart - From folk hero to corporate monster

Article by Mallen Baker

Few companies attract as much emotion as Wal-Mart. In a short time it has become the biggest and the most successful of its kind, striding across the world as a feared giant, the symbol of all that epitomises the uncaring corporation.

It has achieved this unprecedented success by single-mindedly and skillfully pursuing the lowest prices.

The origin of Wal-Mart has many aspects that sit unhappily with the worst assessments of today. Sam Walton was a man with few pretensions who sought to become successful in retail by cutting out middlemen and selling goods to the public at the lowest possible prices. Walton's early stores were phenomenally successful because there was a huge market of relatively poorer people in the out-of-town communities in the US who embraced the opportunity to own the clothes and other goods that would otherwise have been out of their reach.

In the early days, it was a real underdog story. The established retailers did their best to undermine and punish the upstart who challenged what had become a comfortable, closed shop. But Sam Walton, the eccentric who even once he had become a billionaire still hauled his gun-dogs about in his beaten-up truck, was indefatigable in locating people who would sell to him at rock bottom prices.

The Wal-Mart approach didn't seem to be predicated on simply making the biggest profit. Clarence Leis noted in Walton's autobiography: "Sam wouldn't let us hedge on a price at all. Say the list price was $1.98 but we had only paid 50 cents. Initially I would say 'Well, it's originally $1.98, so why don't we sell it for $1.25?' And he'd say 'No. We paid 50 cents for it. Mark it up 30 percent, and that's it. No matter what you pay for it, if we get a great deal, pass it on to the customer".

Uncomfortable though it may be for many anti-corporate warriors, such an approach is considered by many customers to represent the front line of social responsibility.

In addition, Sam Walton had a strong commitment towards the people who worked in his store. According to Dean Sanders, Executive Vice President Operations, Walton had a genuinely open door policy to his people - and had no tolerance for any of the managers mistreating the associates in the stores.

So how did it get to the point where, instead of epitomising American values and success, Wal-Mart came to be accused so consistently of 'destroying America'? How can it be that how Wal-Mart treats its own people could be so consistently one of the main bones of contention?

The list of accusations is impressive. When a Wal-Mart comes to town, it immediately sets up the most unequal and brutal competition with existing stores. Regardless of whether they are discounters, or traditional mom 'n pop stores, Wal-Mart will undercut them with predatory pricing, out-advertise them, and persist until it has succeeded in driving them out of business.

Not only that, but far from caring about its own employees, Wal-Mart underpays them, is deeply opposed to anything resembling union organisation, and will expect total loyalty and commitment in return.

Not only that, but now the company has moved from a list that might easily describe a commitment to competitiveness that has gone out of control, and replaced it with a real link to the darkside. Wal-Mart was named this year, for instance, as 'Sweatshop Retailer of the Year'.

In spite of the frequent controversies, Wal-Mart has become the world's biggest business. It may be a hugely litigious entity in support of its success, but it doesn't seem to be one overly concerned by the routine trashing of its reputation, since at the end of the day for the customer it is the price that talks. As one of Wal-Mart's greatest critics, Bill Quinn, admits: "Wal-Mart's arrival will probably be accompanied by a fair amount of excitement and anticipation. A lot of people in your town will want to have a Wal-Mart. They'll see all the advantages of having a big discounter around, probably without seeing the costs to the town and the life they have known".

This in spite of one of the most concerted anti-company campaigns of recent times. Indeed, Wal-Mart must be particularly distinguished in having the largest number of anti websites of any single company. There is walmartwatch.com, which carries a broad range of stories and information against the company. There is a site for Wal-Mart employees, called walmartyrs.com. There is even a site specialising in information sharing for lawyers engaged in suing the retail giant, wal-martlitigation.com. There is a Wal-Mart personal injury site, walmartsurvivor.com, and a lot more besides.

How many of the black marks held against the company are inherent to its successful exploitation of a particular approach to its customer? Certainly some of the arguments about how the company drives out the competition might be seen as the logical end consequence of a capitalist economy where the customer is able to reward those who provide the best deal.

The stories about how the company treats its own people do not seem to be part of that package. Other successful discount operations - the UK's ASDA, for instance - have been able to build a principled commitment to both employee and local community. Indeed, ASDA's approach seems to have so far survived its ascension into the Wal-Mart empire a few years ago.

The trouble is that Wal-Mart has just become so big through practices that were beneficial when it was the underdog that it will see little reason to change. Sam Walton suggested that he was successful in the early days because the existing operations were inflexible and resistant to the kinds of adjustments that needed to be made.

Wal-Mart is now the most successful business in the world, so will be little inclined to hear arguments that it needs to consider its own sacred cows. But it is woefully behind the trend where responsibility follows power, and this has led to a system that is now having consequences well beyond what originally could have been thought possible.

It has become a symbol of the fact that maximum efficiency in business does not necessarily deliver maximum benefit. It may take a while before the reality of this message spreads beyond the fringes and really comes home to roost. And yet it surely will, since overwhelming power exercised without due sensitivity or responsibility will only create a reaction that will grow until it reaches the stage it can no longer be ignored.

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In the news from the latest issue

Apple suppliers in bribery charges

UK: Gap, Next and Marks & Spencer respond to Indian worker abuses

British court delays Yevgeny Chichvarkin extradition hearing

New integrated reporting coalition launched

Netherlands: Trafigura guilty of exporting toxic waste

Kazakhstan: Philip Morris suppliers used child and forced labour

US: Nestle to drop 'deceptive' health claims

China: Hang Seng launches corporate sustainability index

Monsanto GM seed ban is overturned by US Supreme Court

Bhopal trial: Eight convicted over India gas disaster

Nestle announces NGO partnership to verify palm oil

Macmillan faces World Bank ban over Sudan payments

Mining giant BHP Billiton admits it may have bribed foreign officials

Foreign firms pledge not to give bribes in Russia

... more news stories

To make any comments / suggestions re. this site, please contact mallen@mallenbaker.net
Business Respect - most recent edition added on 9th August 2010