Business Respect - CSR Dispatches No 65 - 2 Nov 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 recent World Bank report on barriers to the effectiveness of codes and standards in the supply chain.

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/65.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

There is a commonly accepted perception amongst many in what might be loosely terms the CSR movement that the engagement of Small to medium sized companies is one of the great tasks that has to be accomplished. After all, the number of SMEs is counted in the millions, and the aggregate impact on society of all these small firms is immense.

It all depends on what the question is. If it's about sustainable development or minimum standards on human rights - it's never going to happen through persuading small firms to embrace best practice.

Reviews of the marketplace in the UK when some years ago reckoned that something like 60 percent of small firms are simply content to survive. They are the newsagents, the laundrettes - the firms that are content to turn enough money over to give their owners and staff a passable living. They do not aim to grow. They are not interested in management theory. Beyond the occasional bit of casual citizenship - involvement in a local school because the manager's kids go there - they will not see, feel nor touch this agenda.

If minimum standards need to be applied - that takes legislation.

At least twenty percent of the remainder are growth oriented, ambitious and looking for any lever they can use to survive and become successful. Such companies will often be the ones seeking out the large contracts with the big buyers. They will be alive to the trends that affect their marketplace. They are the natural small business champions of social responsibility.

But mostly - so far - they simply don't see the business case. The CSR movement doesn't help them, since it consistently overcomplicated and jargonises the whole movement. So far, the best salespeople for CSR amongst small companies are the large buyers who have increasingly been called upon to manage social responsibility down the supply chain.

After all, if it is your product that is being made, it is your process - even if some other company actually runs that part of it. There's no point managing your environmental emissions, your health and safety and your community involvement if you've outsourced most of your product development to others and it now falls fully out of the scope of what you're doing.

So far, it is supply chain pressure that is the biggest business case for small businesses. Few small firms can play to the ethical market niche, although some do so very successfully.

The trouble is that if we want supply chain pressure to deliver real results with knock-on effects - in the absence of legislation - we need to achieve real scale. And such scale is not being achieved. A recent report commissioned by the World Bank looks at some of the barriers preventing such scale and impact. We review this, and consider some of the conclusions.

Meanwhile, we have a big 'thank you' to offer Jeroen Hoff, from the CSR Academy in Rotterdam. Jeroen is the first of our volunteer web page translaters who has come back with the text from some of the core website pages translated into Dutch. This is a fantastic contribution of time and skill, and we offer our heartfelt appreciation. We look forward to getting these pages live onto the website soon.

Speaking of the website, the vote there continues. The current status is as follows:

In countries like Burma or Sudan where there are huge human rights challenges, companies should:
Withdraw - no company with a conscience should do business there
69 (24%)
Do business there - but use its influence to try to make things better
196 (68%)
Do business there - and keep out of interfering in politics
22 (8%)

Many thanks to the 287 people that have voted so far. Still a couple of weeks if you would like to make your views known - although we will replace this poll soon.

Mallen Baker
Vanessa Wood
editors@mallenbaker.net

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CSR News 2 Nov 2003

UK: New corporate governance rules come into effect

The new code of corporate governance, produced following the Higgs Review of the Role of Non-Executive Directors, has come into force. The code is the latest of a number of international initiatives to prevent further corporate scandals following the fall of Enron.

Companies not already operating according to the new prescriptions will be required to 'comply or explain' - and expectations are high that shareholders will be looking for more than just token excuses if they choose the latter.

Measures included in the reforms include:

The chief executive should not go on to become the chairman of the same company.
Half the board in the major companies should be independent non-executive directors.
Company audit committees should be strengthened with a view to ensuring the integrity of the company's accounts.

The original Higgs recommendations were met with considerable controversy, with a number of business leaders and others arguing that the reforms contributed little towards good governance. Some of the proposals, for instance that there should be a senior non-executive director who had a direct, ongoing role with shareholders, were abandoned."

US; BOC to challenge verdict on fumes and Parkinson's Disease

Industrial gases group BOC has said it will challenge a Madison County court verdict linking welding fumes with the onset of Parkinson's Disease.

BOC has said it is confident of winning an appeal as the ruling contradicts the verdicts of every other jury that has considered identical claims. Shares of the company fell almost 7 percent following the ruling.

The case came about as a Parkinson's sufferer claimed that exposure to elements in welding fumes, in particular manganese oxide, had triggered his condition.

The company said that no causal relationship has been established, and the verdict was contrary to all scientific evidence.

Philippines: Banks refuse corporate governance tests

Twenty of the Philippines' big commercial banks have refused to take part in a test on corporate governance produced by the Institute of Corporate Directors (ICD).

The ICD executive director said that the response of many of the banks approached had been that they would not take part unless the test were made mandatory due to the cost it would impose. The banks turned down an offer that the scores would not be made public.

A similar test during the previous year had been completed when it was required by the Bangko Sentral ng Pilipinas, the Philippine central bank.

The ICD believes that the banks are missing out on the benefits the exercise would have brought, since it would have enabled them to analyse their improvements in corporate governance.

UK: Finance union slams move of workers to India as 'profit without conscience'

The finance union UNIFI has reacted angrily to Lloyds TSB's recent announcement - the latest of several from major banks or call centre operators - that it is to move around 900 jobs from the UK to India.

Bernadette Fisher, UNIFI’s National Officer said: "This is a callous move by Lloyds TSB, jumping on the outsourcing overseas bandwagon accelerated by HSBC earlier this month, and shows that despite all Lloyds’ statements on social responsibility it has no respect for staff, customers or local communities. It is purely in the business of generating profit without a conscience. The transfer of work to India is only motivated by the desire to increase the £1.68 billion half-year profit figure to June 2003."

The union has promised a campaign aimed at the bank's customers and at MPs.

Lloyds TSB has said that the decision to move the call centre was a result of the high staff turnover at the location in Newcastle, leading to inconsistency in levels of service. Call centre jobs in India are often highly regarded, and there is a much lower level of turnover as a result.

UN should investigate corporate complicity in Congo

The UN Security Council should insist that member states launch investigations into the involvement of multinational corporations in the war in the Democratic Republic of Congo, according to a number of human rights and environmental campaign groups.

A statement by the groups said: “The Security Council can no longer ignore clear evidence linking the exploitation of resources to the war in the Congo. It must insist that member states hold the companies and individuals involved to account, including companies based in western countries. Business must demonstrate its commitment to change the way it operates in conflict situations.”

The groups allege that the exploitation by companies of the country's mineral resources has been 'the biggest single factor' in the continuing violence. The funds from the sale of these resources has helped to finance the war and acquire weapons.

The group includes Christian-Aid, Friends of the Earth, Global Witness and Oxfam.

China: Fook Tin Technologies wins environmental recognition

Fook Tin Technologies, the manufacturer of weighing devices based in Shenzhen, became the first winner from mainland China of the environmental performance award granted as part of the Hong Kong Awards for Industry.

The company has boosted its sales and exports with its advanced approach to environmental management - particularly to those marketplaces where interest has been growing in the success of supply chains in this area.

The company's factory has extensive recycling initiatives, reducing the waste of around 54 kinds of raw material, water and energy. It has strong measures to control emissions and noise, and uses biodegradable cardboard rather than polystyrene packaging.

Other highly commended companies include CLP Power Hong Kong, Kowloon Motor Bus and KWP Quarry Company.

South Africa: New Diamond Corp mine closed down

The government has closed down the mining operations of New Diamond Corporation in response to contraventions of environmental regulations.

The company, a black empowerment firm, is the fourth to have been hit by the minerals and mining department over the last year in a crackdown on mining firms that breach environmental standards.

All operations at the company's prospecting site in Kimberley were suspended when inspectors discovered damage to graves as a result of hazardous waste leakage. Water supplies to nearby communities were also judged to be at risk.

The company will now be required to satisfy stringent conditions before it can open again, as well as compensating those affected by the problems to date.

The government's spokesman, Kanyo Gqulu, told Business Day: "We need to be convinced that the mining operation is not desecrating the environment and that health and safety standards are being maintained."

Ireland: CEOs sign Corporate Responsibility Charter

Twenty-three chief executives from companies based in the Republic of Ireland have signed a Corporate Responsibility Charter, covering greater stakeholder dialogue and accountability.

The charter has been introduced by Business in the Community Ireland, an independent sister organisation to Business in the Community UK.

Padraig McManus, chief executive of ESB and vice chairman of BITC Ireland, said: "Corporate responsibility should be viewed as an essential component of business decision-making and more than ever needs to be fully integrated into company strategy".

Business in the Community Ireland currently has twenty six members, including some of Ireland's biggest names. The recent initiative follows a range of programmes in the last year, including one on corporate reporting.

Arab Business Council calls for corporate accountability

The recently formed Arab Business Council (ABC) has called for greater transparency and accountability amongst business and government in the Arab world. Business also needs, it said, to lobby governments for needed reforms.

The council, which was launched following the World Economic Forum meeting this year, has representatives of the top 100 Arab companies. It aims to boost the competitiveness of the region by dispelling negative stereotypes by promoting a code of conduct for Arab companies to boost ratings in relation to international corporate governance standards.

Mohammed Alabbar, director general of the Department of Economic Development said that competitiveness, corporate governance, corporate social responsibility, transparency and accountability are some of the key objectives that the new organisation will seek to achieve in the Arab world.

Ireland: Vodafone to provide free broadcast for dolphins

Vodfaone is to collaborate with a wildlife programme in Cork by enabling its customers to listen in to the sounds of dolphins in the Shannon estuary for free.

The project, being carried out by the Shannon Dolphin and Wildlife Foundation, is called Soundwaves, and aims to provide information for conservation purposes as well as raising awareness amongst the general public about dolphins and the potential threats to their wellbeing.

Vodafone will begin the broadcasts in around a year.

ElectricNews quoted Vodafone corporate social responsibility manager Olivia Dobbs. "We were out on the boat listening to the dolphins on Monday. It was fantastic to hear them. Vodafone is aware of the impact of business on the environment and we wanted to give something back. In time, we may introduce 3G to the project, resulting in a visual as well as acoustic element".

Russia: Yukos head charged with fraud

Mikhail Khodorkovsky, head of Russian oil company Yukos and Russia's richest man, has been charged with six criminal offences after a dramatic arrest at a Novosibirsk airport in Siberia.

Khodorkovsky had already been interrogated twice in investigations into the company's activities. The charges brought against him include tax evasion and fraud.

Some commentators believe that the action against Yukos during the last months is evidence that the Kremlin aims to demonstrate its authority in the face of a business elite with growing power and importance in Russian society - and in an attempt to keep businessmen out of Russian politics.

The authorities claim Khodorkovsky had ignored a summons - a claim disputed by the company.

US: SEC describes fund abuses

The US Securities and Exchange Commission says it has discovered widespread bad practice amongst many of the largest fund companies and brokerage firms - half of the 88 companies it recently surveyed.

The S.E.C. is carrying out an investigation into mutual funds following recent revelations around practices allowing investors to exploit innefficiencies in share prices by making rapid sequential trades. Although the behaviour, known as 'market timing' is not illegal as such, it is seen as unethical - producing results that can be unfair to long-term fund shareholders.

Some of the firms also allowed privileged customers to make late-day trades in fund shares, which can enable them to profit from overnight price movements.

According to the New York Times, the regulatory official expressed surprise at the findings and promised fast action against the companies.

CSR FEATURES from the Internet

Companies urged to engage in good citizenship - 1 Nov 2003 FROM The Japan Times

In the wake of huge corporate scandals in Japan and the United States, companies are under pressure to be more socially responsible.

The trend has fed demand for universal guidelines for firms to use in filing reports on how they are performing in terms of society, the environment and ethics, according to Ernst Ligteringen, head of the Amsterdam-based nonprofit organization Global Reporting Initiative, known as GRI.

Read full story

Corporate Citizenship: A Tax in Disguise - 1 Nov 2003 FROM Ludwig von Mises Institute

Corporate Social Responsibility is the new field that has united a variety of campaigning groups, including environmentalists, poverty campaigners, third world charities, and unions in a collective call for business to support their agenda. More unusual, it even has prominent supporters within the business community.

Charitable giving by business has a long history, although in the case of large corporations with a diffuse shareholding it carries the moral hazard of executives buying social respectability (in England, even knighthoods) with their shareholders' money. The morally, and socially, superior position would be for shareholders to receive their full dividends and themselves support charitable action.

Read full story

Cleaner at Wal-Mart Tells of Few Breaks and Low Pay - 25 Oct 2003 FROM The New York Times

Every night for months, Victor Zavala Jr., who was arrested on Thursday in a 21-state immigration raid, said he showed up at the Wal-Mart store in New Jersey to clean floors. As the store's regular employees left at 11 p.m., Mr. Zavala said, they often asked him whether he ever got a night off.

Mr. Zavala, identified by federal agents as an illegal immigrant from Mexico, told the Wal-Mart workers that he and four others employed by a cleaning contractor worked at the Wal-Mart in Old Bridge every night of the year, except Christmas and New Year's Eve.

Read full story

Balance the cents and sensibility: Samuel - 24 Oct 2003 FROM The Age

The nation's competition tsar, Graeme Samuel, said last night that big business should be alert to the well-being of the community at the same time as fulfilling its duty to shareholders. The chairman of the Australian Competition and Consumer Commission said he preferred the term "corporate sensibility" rather than "corporate responsibility", which he described as potentially harmful.

Mr Samuel, who was delivering the 2003 Alfred Deakin Lecture at Melbourne University, said what he was recommending was "not so much about cheques as it is about attitudes, social involvement and sensible, socially responsive business management".

Read full story

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Buying into social responsibility

Article by Mallen Baker

The importance of how companies manage social responsibility across the whole of their production process - including that part owned by their suppliers - has been stressed for some years now. Nevertheless, it remains the area where current practice remains pretty poor.

Benchmarks such as the UK's Business in the Community Corporate Responsibility Index show that the management of impacts in the supply chain remain amongst one of the least developed areas.

So it should be of interest that the World Bank, with Business for Social Responsibility, should produce a report seeking to identify some of the barriers to progress in responsible supply chain management.

The World Bank began with three challenges, which it sought through this research to prove or dismiss. The first was that "The plethora of individual buyer CSR codes is now generating inefficiencies and confusion."

The second was that "An increasing number of buyers are recognising that traditional top-down CSR strategies are not achieving improved CSR implementation."

The third, that "Suppliers have an insufficient understanding of the business benefits associated with making the required investments in CSR."

In the case of the first, it will amaze nobody that its research broadly supported the contention. There is a growing dissatisfaction, not to mention frustration, at the growing number of codes, standards and benchmarks. That being said, there are often very good reasons why different purchasers will stress different approaches, and the participants in the World Bank survey reportedly showed no great enthusiasm for work on a single base code of conduct.

In many areas, the requirements of codes have converged of their own volition. The main improvement to the current state of affairs would be more opportunities for data and information gathered for one to be eligible to act as a submission for others.

The second area is probably the most contentious. Everyone knows the power of the strong purchaser. If the buyer wants to see standards improve, and the alternative is that they take their business elsewhere, that's going to act as a pretty major incentive.

Even without the compulsion, it can make a big difference. I remember myself running some well-attended workshops for small to medium sized businesses on environmental policy and practice. Why so well-attended? Principally because the major retailer who was a number one customer for these suppliers had let it be known that it thought they should attend.

However, there's no doubt that suppliers don't like this approach - it is a very blunt tool, and can be extremely confusing if almost every other signal that is received from the buyer is that it is price alone that makes the difference. Some of the NGOs and labour groups feel similarly - preferring a model that involves bottom-up labour empowerment - almost in spite of what the top management might do.

The challenge is that there are not many successful examples of the latter - and there is plenty of progress that has been made so far with the former. Some of the most successful supplier programmes - such as that operated by B&Q - have been predicated on a strong central direction for conformance, backed by support and help to improve. There are a number of documented sources that suggest the requirements of multinationals have been a big factor in improving conditions in some labour markets - although this can never be consistent if the national legislature of those countries is too weak to enforce decent minimum standards itself.

The third challenge might be instinctively be held to be true - and this instinct is backed up by the findings of the report. By and large suppliers are resistent to pressure in responsible business practice if they have no understanding of a business case for how it can benefit the business. It is important, therefore, for both buyers and suppliers to undertake some investment in the time and resources to thoroughly establish the best reasons and processes for going forward.

The truth is that there are mixed perceptions of the degree to which the business case actually exists. Even those buyers may feel they have been pushed into their position by public pressure from NGOs the validity of which they may reject - so they cannot act as effective agents of change within their supply chain.

The study identified certain issues that had not formed the initial premise. The labour unions, for instance, rejected the basis for the study altogether - ie. that codes on CSR could be a positive contribution to business practice. They felt that legislative implementation and enforcement was really what would make the difference.

In many ways, this is undeniably correct - but not much help for the business in establishing what it should do in a business environment where those conditions patently do not exist.

The World Bank report was inconclusive in its recommendations, noting that the consultees were completely divided as to the best way forward. Some wanted more standardisation in codes, others rejected their value altogether. Some wanted to build the capacity of local NGOs, civil society and business support organisations, others drew attention to the lack of a level playing field that failed to reward companies that took actions beyond those of their competitors.

Interestingly, one phenomenon that didn't raise its head very much at all, is the growing body of multistakeholder initiatives. These were considered by many of the respondents as being of little importance - the buying companies who call the shots are the ones who really define the terms of reference. There were some buyers and Northern groups who saw these to be an important part of the solution - but so far they are apparently the only ones who think so.

The survey, which covered the views of 194 individuals from 164 organisations provides some interesting food for thought. It would, however, have been useful to have been able to separate out the views of the buyers and suppliers group from that of the 'usual suspects' campaigning NGOs - not because the views of one group is more valid than the other, but one suspects the differences of perception were rather large and it would be helpful to see them clearly drawn.

What are the models going forward? This is unclear, but there are some promising initiatives that the report draws attention to that may prove to be instructive. So, for instance, the Better Banana Project - an initiative operated by the Rainforest Alliance and its partners in the Sustainable Agriculture Network, developing guidelines with multiple stakeholders on the certification of coffee, banana, cocoa, orange and cut flower and fern farms. As of 2002, 474 farms and cooperatives
in Brazil, Costa Rica, Colombia, Ecuador, El Salvador, Guatemala, Hawaii, Honduras, Mexico, Nicaragua, Panama, and the Philippines have been certified by the programme.

Also, the International Council of Toy Industries (ICTI), an industry group that has launched an effort to create a common monitoring protocol for factories in China producing toys for export.

This is an issue that will run and run. Performance on responsible practice in the management of supply chains will continue to be an area of growth for the major buyers, as they are increasingly held accountable for the parts of their manufacturing process that are owned by their suppliers. Likewise, the absence of a single emergent model of best practice will mean there is plenty of room for development and growth. Watch this space.

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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