Business Respect - CSR Dispatches No 62 - 7 Sep 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 range of corporate social responsibility issues arising from how companies operate in the marketplace.

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/62.html.

Copyright 2003 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

Happily the latter messages are not the case - we know because the virus in question infects Windows machines and we use a Macintosh to put Business Respect together. It does, however, spoof the sender of email addresses in order to trap the unwary into opening it. We hope that none of our readers have been caught out because of a Business Respect header. If you have been - our sympathies - but it really didn't come from us!

As a result of the hundreds of messages, it may be more likely that we will have accidentally deleted genuine messages in trying to clear the mailbox of junk. If you've been expecting an answer from us and haven't heard anything, do try again - use a header that says something like 'Business Respect query - ' that should help it to stand out!

The vote on the website on public policy continues. The issue around public policy has been picked up by Trillium Asset Management, that said on its website that it "will be exploring ways to promote greater transparency in lobbying among our holdings." There have been one or two other stirrings on the issue emerging in other places too.

The vote currently looks like this:

When it comes to lobbying on matters of public policy, companies should:
Lobby away and / or pay donations - legislators are grown-ups
22 (7%)
Lobby and / or pay donations - but they must disclose what they do
206 (62%)
Do nothing - corporate lobbying should be banned
105 (31%)

333 people have voted to date. We will be changing this poll soon, so the next few days are the last chance to make your views known.

By the next issue, we will have attended and taken part at the Asian Forum on CSR - so expect a lot on that next time. Once again, do let us know if you'll be around at either that conference or the following Ethical Corporation do in Singapore - we're always keen to meet Business Respect readers!

Mallen Baker
Vanessa Wood
editors@mallenbaker.net

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CSR News 7 Sep 2003

Key mining and oil companies pledge to keep hands off protected sites

Royal Dutch/Shell and the International Council on Mining and Metals (ICMM) have stated that they will not lead land explorations in any of the 172 protected areas listed by the World Heritage.

The ICMM contains fifteen of the world's largest mining and metal producing companies. The group made the commitment to "take all possible steps to ensure that operations are not incompatible with the outstanding universal values of World Heritage properties."

Sir Robert Wilson, Chairman of the ICMM said: "We understand that the analysis of all options for land use will sometimes mean that mining projects cannot proceed because unique and sensitive biological or cultural values would be compromised if they did. We need and intend to earn the trust of other participants in the debate so we can contribute to sustainable development."

Lesotho: Bribery charges extend to Spie Batagnolles

French construction company Spie Batagnolles is to become the third company prosecuted for alleged bribery in the Lesotho Highlands Water Project.

The action follows successful cases against German engineering firm Lahmeyer International and Canada's Acres International. The companies were both fined over R10m each after being convicted for bribery.

Lesotho's director of Public Prosecutions, Leaba Thetsane said several other companies would also be prosecuted for bribing Masupha Sole, the former chief executive of the Lesotho Highlands Development Authority currently serving a 15-year jail term.

Indonesia: Asia Pulp & Paper signs deal with WWF

Asia Pulp & Paper (APP) has signed a memorandum of understanding with the WorldWide Fund for Nature (WWF) over the management of its forests in Sumatra. The deal also includes the company's fibre suppliers, the Sinar Mas Group forestry companies (SMG).

APP - heavily criticised for years by environmentalists and recently under great pressure from Japanese corporate customers - has said it will produce an action plan by next January to tackle illegal logging by its suppliers and improve checks on where its resources originate.

Mubariq Ahmad, Executive Director of WWF Indonesia, said, “WWF Indonesia is pleased with the commitments made by APP and SMG, and is ready to assist with their implementation over the coming six months. This is an important step in APP and SMG’s continuing efforts in the area of environmental sustainability and social responsibility. ”

The Financial Times in a report on the move noted the central role of the company's PR agency Ogilvy in drafting the statement and advising on commentary around it, implying that the move takes the company onto unfamiliar territory.

APP is undertaking a huge debt restructuring for $6.7bn owed by four key subsidiaries.

Petro-Canada blames environmental legislation for refinery closure

Petro-Canada has announced it is to close its oil refinery in Oakville, USA, cutting 350 jobs in the process, as a result of environmental legislation requiring lower sulphur emissions.

In a statement, the company said it aimed to consolidate its eastern Canada refining operations in Montreal. The closure takes place timed to co-incide with a deadline requiring gasoline sold in Canada to contain less sulphur.

The company's chief executive Ron Brenneman said that the sulphur standards made it uneconomic to run a small 'disadvantaged facility'.

"We understand that today's announcement is difficult for the employees and their families," said Boris Jackman, Petro-Canada's executive vice-president for refining and marketing operations.

WorldCom CEO pleads not guilty

The former WorldCom chief executive Bernie Ebbers has pleaded innocent to charges that he broke securities laws. The event marks the final opening of court proceedings against executives responsible for the company's $11bn accounting scandal.

Ebbers, 62, was freed on $50,000 bail, and a pretrial conference was set for Oct. 30. He is accused, along with five other former WorldCom executives, of 15 felony counts, each of which carries up to a $10,000 fine and a 10-year prison sentence.

WorldCom, now known as MCI, is also charged by the allegation that the company's falsified profit reports caused investors to lose millions.

Dow Jones Sustainability Index - Winners and Losers

AMP, Anglo American, BAE Systems, Gap, and Toyota Motor Corp are amongst the companies that have been added to the Dow Jones Group Sustainability Index with the latest revision announced on September 4th.

Other additions to the index include Fannie Mae, National Australia Bank, Centrica and National Grid Transco with a revision that saw 51 new entrants.

On the down side, a number of companies were removed from the Index. These included the Bank of America, Boeing, DaimlerChrysler, Singapore Airlines and Telecom Italia Media.

East European companies growing on CSR disclosure

According to a new survey by the Partners for Financial Stability programme, 48 percent of major Eastern European companies disclose community involvement information on their websites - with a further 22 percent of the companies surveyed giving information on environmental performance.

The survey is the first giving an overview of CSR take-up by CEE listed companies, following a review of the websites of the top ten companies from each of the six CEE companies slated for European Union (EU) accession in 2004: the Czech Republic, Estonia, Latvia, Lithuania, Slovak Republic, and Slovenia.

Encompassing accounting standards, corporate governance, environmental policies and social policies, the survey analyses corporate reporting on matters that previously might not have been considered essential. However, as the above-mentioned countries enter the European Union (EU), listed companies will come under the tighter scrutiny of EU disclosure requirements about these issues. Also, in a more global marketplace, listed companies will face more CSR-conscious investors and consumers.

Unocal under pressure over Myanmar

Chief financial officers from New York and California have called upon Unocal to withdraw from Myanmar or clearly state that the company operates in line with human rights guarantees.

California Treasurer Phil Angelides and New York State Comptroller Alan Hevesi told Unocal officials Tuesday during a face-to-face meeting that the company should justify to shareholders why it continues to operate in the country.

Unocal is currently fighting a class action lawsuit from 18 farmers accusing the company of complicity in human rights abuses conducted by security forces during the construction of the Yadana pipeline.

McDonald's latest obesity suit thrown out

The second major attempt to hit McDonald's with a class action lawsuit over its contribution to obesity suffered by its customers has been thrown out by a federal judge.

US District Judge Robert Sweet ruled that the plaintiffs had not shown evidence that the company in any way misled its customers into believing its food was part of a healthy diet. The same judge was responsible for the ruling on the previous attempt, that dismissed the argument that the company's fare caused health problems in children.

The judge said the lawsuit failed to establish that any injuries resulted from McDonald's advertising about its french fries or hash browns.

The issue of obesity has come to the fore in recent years, with studies finding that more than half of all adult Americans are overweight and 54 million clinically obese. The potential losses to the food industry if successful suits were achieved holding companies liable could dwarf recent awards against the big tobacco firms. So far, however, no such action has been successful.

US: Boise Cascade announces zero old-growth wood policy

The paper and building materials company Boise Cascade has announced that from 2004 it will no longer use timber from old-growth forests or from endangered forests.

The company said that the announcement made Boise the first major US forest products company to adopt a comprehensive environmental statement for its operations, and the first distributor of wood and paper products to extend an environmental policy to its suppliers.

The company has committed to give purchasing preference to suppliers who provide wood products from certified, well-managed forests, and it will seek to strengthen efforts to prevent illegal logging.

"This statement formalizes Boise's commitment to environmental stewardship by linking the company's broad and varied environmental activities into a unified statement," said George Harad, Boise's chairman and chief executive officer.

Jennifer Krill, Old Growth Campaigns Director for Rainforest Action Network, said, "Boise has become the first American forest products company to adopt an international policy to help protect endangered forests. With such strong leadership from Boise and its customers, we expect it's only a matter of time before the rest of the industry follows suit."

Rainforest Action Network has sent letters to a dozen other such companies to challenge them to follow Boise Cascade's lead.

Australia: Fintrack Financial Services criticised over advertising

Mortgage broker Fintrack has been criticised by the Australian Securities and Investments Commission (ASIC) for the accuracy of its advertising - particularly the claim that the company was free of conflicts of interest caused by commission-based selling.

According to ASIC, the company's claims that its brokers are paid 'virtually the same commission' and therefore could guarantee impartiality, had the potential to mislead customers.

The watchdog has invited customers who could potentially have suffered loss as a result of misleading advertising to put in a claim with the company for compensation.

The company has agreed to contribute to an ASIC consumer education programme. Fintrack complained that, although it had made mistakes, it believed itself to be ahead of its peers who had not yet received such scrutiny.

Australia: Business Council breaks ranks over Kyoto

Divisions amongst Australia's leading businesses on climate change have become apparent with the announcement of a shift by the Business Council of Australia from a position of hostility to the Kyoto Protocol to one of neutrality.

The change is the first indication of a major split of opinion amongst the top 100 businesses with some companies supporting the government's opposition to the international treaty and others opposed.

The government's stance has arisen from the view that the Kyoto Protocol would impose costs on business that developing world competitors would avoid. However, many major companies worldwide have decided that they stand to lose if the effects of climate change become more pronounced.

Other business organisations currently continue their position of opposition.

CSR FEATURES from the Internet

Politically correct down to a T: the rise of ethical chic - 7 Sep 2003 FROM The Independent

It has long been the dilemma for the fashion conscious with a social conscience: how to dress both trendily and ethically at the same time? Now an American firm claims to have an alternative to the high street brands beset by accusations of child labour, starvation wages and death-trap factories.

American Apparel, a small clothing company from California, claims it is to be the first brand to make stylish "sweatshop-free" clothing - selling T-shirts, knickers and vests made without exploitation.

Read full story

A Short History of a Fabulous Invention: The Company - 3 Sep 2003 FROM The Atlantic Online

The Company might have shed a different light on current debates about corporate social responsibility. My esteemed colleagues, I fear, are quite keen on corporate responsibility. "There is a widespread feeling," they note, "that companies have not fulfilled their part of the social contract." Now for the good news: "Companies have become increasingly explicit about their social goals."

This sits oddly at the end of a book that carefully explained that the managers of public companies do not own them — and that underlined how dangerous it is to let managers forget it. If managers have social goals, they are at liberty to pursue them at their own expense. Framing social goals, when the costs are to be met out of other people's pockets, is the proper task of democratic politics, not of the company boardroom.

Read full story

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In the market for business responsibility

Article by Mallen Baker

How companies show social responsibility in the marketplace is the key challenge that will come to define the success or failure of CSR over the coming years. When journalists note in passing, as some have certainly done recently, the 'triviality' of much of what passes as CSR, they are usually reflecting the relative novelty with which the movement is getting to grips with issues around core products and services.

CSR commentators have tended towards relatively straightforward models of CSR where there are reasonably easy-to-understand rules. This is not the case for the area of marketplace and, as a result, many business leaders remain confused about what social responsibility in the marketplace means - and just how they can make sense of it in practice.

Part of the challenge is one of ownership. We know who the HR directors are that own the workforce diversity, the health and safety, and the work-life balance issues. We know the community affairs managers who deal with investment in the community. We know the environmental managers putting in place the environmental management systems.

But responsibility for ensuring responsibility around core product and service? That starts with the CEO and board, goes through the product development and innovation functions, the marketing and communications functions and flows out through the sales force. The lack of a single owner has often resulted in the lack of a coherent approach.

But as more and more companies set up board-level committees on CSR, they are getting to grips with the realisation that probably a full 50 percent of the problems that could jump up to damage the company's reputation are based on marketplace issues. It's worth spending a little time reviewing the territory, and drawing attention to the most obvious examples.

The most important area is that of the impact on society of the core product or service - and how this is managed. The obvious example of the product that even its manufacturers admit has a negative impact is that of tobacco. The issues here are not easy. Few people love tobacco companies, but in the more or less global reluctance of legislators to ban it, society needs to be able to define what it means to be a socially responsible tobacco company. So, for instance, companies that have tried to promote anti-smoking messages to children have been accused of deliberately not doing so effectively. Companies have have tried to develop 'lite' - intended less damaging - cigarettes have been attacked for lowering the threshold and therefore potentially encouraging more people to start smoking. So how would a company deal with such an issue in a responsible way?

Not that the issues are generally so stark and polarised. The issues facing the motor manufacturers are a case in point. The race is on to develop the commercially viable environmental car. Some would argue that the industry has been way too slow - refusing to seek to educate customers to compromise on performance in order to benefit from existing efficient technologies. Others would suggest - and this does seem rather borne out by customer behaviour - that people will not accept greener cars until such cars can provide equivalent performance to the standards of today for a reasonable price. Being ultra-responsible and going bankrupt as a result won't look much like social responsibility to the workers who lose jobs or the consumers who then have no product to buy. The gap between leading the market and getting ahead of it is a narrower one than we might sometimes like to think.

The integrity of product manufacture goes beyond the sale. There is now a steady stream of product recalls where a problem has - for whatever reason - emerged and the consumer needs to be protected. All too often companies - in the face of a costly recall - compound the damage by being seen to be dragged kicking and screaming to the point where they agree to the recall.

Best practice includes the well-known case of Johnson & Johnson (case studied on the mallenbaker.net website) and the Tylenol recall. In this case, a malicious outsider had tampered with a number of product units - poisoning them. The company responded immediately and vigorously, recalling the drug from across its area of operations - well beyond the immediate area that most companies would have tried to restrict the recall. The trust won by Johnson & Johnson in that case was such that its sales quickly recovered once the scare was over - and it is probably quoted more often than any other company as an example of good practice in this area.

You can contrast this with any number of unfortunate examples - companies that hid problems with baby cots leading to infant injuries and death, the Perrier incident where a considerable reluctance to act inflicted much greater damage on the company's reputation - and many others. Possibly the most dramatic recent case resulted from the public warfare between Ford and Firestone over the responsibility for accidents with Explorer vehicles. Ford recovered the best, going for the most vigorous recall of tyres voluntarily. Firestone only recently recovered into profitability following the plunging confidence resulting from its approach - although both companies suffered because they were unable to maintain a united front.

Another key marketplace issue is that of information given at the point of sale. We are pretty much used now in many countries of the world to the expectation that companies give full lists of ingredients for products they sell. There remain points of contention that can be highly political. Consumers in Europe, for instance, want to be able to choose food that is free of genetically modified ingredients. This is such a strong phenomenon that the major retailers will often ban the sale of GM foods in their stores. At the very least, those consumers who - whether as a result of sound science or not - wish to exercise a choice as to what they ingest will demand that labelling is clear in this regard. The US - that has integrated GM firmly into its own food industry - views even this much transparency as a barrier to trade. This is one where public policy and corporate responsibility is keenly entwined.

How companies advertise is then another key area. Of course, the advertising industry will never adopt a 'zero public complaints' target since the effectiveness of some advertising is predicated on being able to grab attention by treading a fine line between the conventional and the shocking. But the aim of advertising is a legitimate point of focus.

Drinks companies have been judged on whether or not they produce products (in the UK and some other countries, 'Alcopops') designed to appeal to children. Toy manufacturers have gotten into trouble for seeking to employ 'pester power' by appealing directly to children through advertising. And all industries can be hit by accusations that particular adverts have made misleading claims. Indeed, the whole movement recently to hit McDonald's over its role in causing obesity has hinged on the argument that the company's advertising somehow mislead its customers into thinking the food was healthy and nutritious. In this case it is the way the product is sold that is the issue more than the product itself.

How products are priced can also be a key issue. In many instances, good old market economics means that if you can't afford something, you don't buy it. After all, there must be some benefits to making money. However, society still expects fairness in market pricing - to a greater extent than pure market mechanisms can cope.

The pharmaceutical companies have found this to their great cost in seeking to deal with the issues around the pricing of essential medicines for developing countries. The complete mis-match between the cost of medicines and people's ability to pay - against a backdrop of humanitarian catastrophe - led the public in many countries to feel real revulsion at even the concept that a company could make a profit from such a product. And yet, as the companies point out, with no profits there is no programme for the development of further medicines.

The issues do not stop there. Oil companies have often found themselves the target of protests around the increasing price of petrol. On environmental grounds, there are good arguments why fuel should cost more so that it reflects some of the real costs its use inflicts on society. But on the other hand, the consumer has come to see the use of a private motor car as a right - and believes there is a ceiling beyond which the cost of exercising that right should not go.

And then there are the markets that are often ignored - targeted by no-one because they are generally considered to be unprofitable. The under-served markets are made up of low income - even desperately poor - citizens whose areas are run down and neglected precisely because nobody thinks there is a market there to serve. And yet recent initiatives - community banks, market-based regeneration initiatives, have shown that this logic is often plain wrong. Not only can companies who accept the different ground rules turn a profit servicing such markets - they can be part of the process that begins real economic regeneration.

The marketplace does not operate in a vacuum - it is governed by rules. Most often, these rules set limits on how powerful a company can become. If its domination of its market segment means it faces no effective competition, and can use that power to raise the costs to the consumer artificially and to squash any nascent competition - we call such practices anti-competitive. The soap opera of Microsoft and the regulators (the European flavour of which is still ongoing) is the most obvious example. Recently privatised industries that resist taking measures to allow entrants into the marketplace are another case that provides frequent headlines.

So social responsibility in the marketplace is a huge area. We haven't even mentioned Diageo's 'Responsible Drinking' programme, or the supply chain initiatives for sustainable sourcing, or the fair trade movement. There is no business sector out there that doesn't have its share of these issues.

There are certainly common lessons one can illustrate about how companies face these issues. The companies that keep ahead of customer concern (as B&Q did with its sustainable sourcing policy on timber) will do better than those that are forced to react by controversy and pressure. Good crisis management techniques by those that are so challenged (immediate top level response, good communication, openness, acting to resolve the problem in spite of the cost) will serve well regardless of the business sector or the issue. Treating the customer as a stakeholder as well as a consumer will become a finer art as the next few years pass. It is true to say, however, that no-one has yet provided a real route-map for the companies through the maze.

We will know that there has been great progress when an analysis of social and environmental company reporting doesn't show that - still - the majority duck the key product and service issues whilst focusing on philanthropy or community involvement. At that point, the journalists will stop being able to get away with describing CSR as 'trivial'. The day can't come a moment too soon.

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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

To make any comments / suggestions re. this site, please contact mallen@mallenbaker.net
Business Respect - most recent edition added on 17th August 2008