Business Respect - CSR Dispatches No 71 - 29 Feb 2004

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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 look at how much companies can be held responsible for the misuse of their products.

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/71.html.

Copyright 2004 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

The MyDoom virus finally released its grip on the internet a little while ago, which was a welcome instance as far as we're concerned. Over 300 messages a day were being generated to our mailboxes during the height of it all - and the sad truth of it is that somewhere in all that no doubt some legitimate messages got deleted by accident. Sorry if you've not heard back from us as a result.

Mallen was invited to give the keynote for the conference on CSR in Vienna organised by the NPO Institut and, notwithstanding his shameful inability to follow those proceedings that were in german, it was an interesting occasion. The only downside was the relative lack of companies compared to not-for-profits. Coming from an environment where it's usually the reverse that's true, it certainly seemed that it is the presence of a business-led entity bringing businesses together to collaborate on their approach that seems to make a considerable difference to engagement on this kind of endeavour.

The other thing to note on the last few weeks has been the ongoing debate over the recent Christian Aid attack on CSR. Having been quoted for the defence, Mallen has been quite busy responding to requests for further comment. You can see the article on the issues written for Ethical Corporation on the website.

Voting has been brisk on the website poll. The current score stands at: Companies that seek to move jobs from the US / Europe to developing countries with lower costs
Can in no way be called socially responsible 125 (24%)
Are right to stay profitable, but should pay attention to how they make the change 362 (70%)
Should aim for maximum profitability, and not be hampered by unwarranted sentimentality 32 (6%)

519 people have voted so far.

Mallen Baker
Vanessa Wood
editors@mallenbaker.net

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CSR News 29 Feb 2004

Corporate Responsibility Index launched in Australia

The Corporate Responsibility Index, the benchmarking tool that ranks companies on their responsible business practice developed in the UK by Business in the Community, has been launched in Australia.

Spearheaded by St James' Ethics Centre, the Index process will aim to encourage Australia's top companies to show their CSR performance against a robust framework, developed by business. It follows controversy in previous years over the Reputation Index, which was heavily criticised by business for its methodology.

The Index is also approaching the end of its second cycle in the UK, with results due to be announced next month.

Thailand: Bristol Myers Squibb pulls back on AIDS patent

Bristol Myers Squibb has dropped a patent dispute with an AIDS patient in Thailand, and said that it would dedicate the patent for the drug, didanosine, to the people of Thailand.

The move opens the way for the Thai government's pharmaceutical organisation to begin production of the drug at a fraction of the cost of the branded version. It follows the legal move by the Thai Aids Access Foundation in support of individidual HIV sufferers. The action led to a groundbreaking legal position that ruled medicine to be a fundamental necessity unlike other kinds of products or services.

Bristol Myers Squibb said it had withdrawn from the legal challenge since it was in the interests of all parties to settle the litigation. The company defends the principle of patents for essential medicines.

WWF pulls out of Asia Pulp & Paper agreement

The Worldwide Fund for Nature (WWF) has pulled out of its agreement with Asia Pulp and Paper on sustainable forestry, saying that the company's action plan was inadequate. The group claimed that the company was now losing big customers as a result of its position.

APP, which runs paper pulp operations in Indonesia and China, had agreed with WWF last year to produce a sustainability action plan that would aim to make its operations satisfactory by 2007.

The agreement foundered over the company's stated intention to fell 445,000 acres of forest over the next two years. WWF has called for the company instead to increase its use of managed plantations rather than cutting so much virgin jungle. The company responded to the calls by saying that the demands were unrealistic.

Former Enron chief pleads not guilty to criminal charges

Jeffrey Skilling, the former Enron chief executive, has pleaded not guity to a range of charges, including that of directing a scheme to manipulate earnings whilst benefiting from illegal insider trading.

Mr Skilling is the most senior Enron executive so far to be indicted, and his prosecution raises the prospect that soon to follow will be Kenneth Lay, the former chairman. A 'not guilty' plea has been entered against all 42 charges.

The charges include the accusation that, at Mr Skilling's direction, Enron hid large trading profits made during the California energy crisis to offset losses elsewhere.

Last month, Andrew Fastow, the former chief financial officer, agreed a plea of guilty and has been co-operating with the investigations.

Ireland: Companies should be more transparent

Businesses should be prepared to disclose bad news as well as good, a senior partner with PriceWaterhouseCoopers has told a group of business leaders.

Donal O'Connor told a meeting organised by the Chamber of Commerce that they should "tell it as it is" and accept that mistakes were a part of everyday business life.

Rather than covering up, companies should encourage employees to feel confidence in bringing problems to their attention, and this required the fostering of trust between bosses and staff.

Mr O'Connor also argued that communication was key. "All organisations should adopt corporate social responsibility and communicate non-financial as well as financial information to its shareholders, customers, employees and the market," he said.

UK: Best social and environmental reporters recognised

The Co-operative Bank has been named as the UK company that had produced the best sustainability report in the last year by the Association of Certified Chartered Accountants (ACCA) awards. Shell International was runner-up.

In addition, GlaxoSmithKline was awarded for its environmental reporting. Co-operative Insurance Services (CIS) and Traidcraft were joint winners for the Social Reporting category, with BNFL commended as the best first time social reporter.

British American Tobacco, BT Group, Powergen and the Co-operative Bank were all commended for their electronic communications in support of their social reporting.

Andrew Harding, Executive Director of ACCA UK, said: "ACCA is pleased to have received so many strong entries for this year's UK Awards which recognise that sustainability reporting helps all stakeholders to gauge non-financial risk and identify poor performance. If used properly, non-financial reporting also helps organisations to control weaknesses and minimise the risk of ethical misconduct. There is, however, a long way to go. Many more organisations should be reporting in this way and those that do still have room for improvement."

One area highlighted was that there needed to be more disclosure of lobbying positions taken by organisations on key public policy issues.

US: Tyson Foods challenges $1.2bn verdict

Tyson Foods, the major US beef packer, has called upon a federal judge to throw out a $1.2bn verdict against the company that it illegally used contracts with small numbers of ranchers to drive down prices paid to others.

The company has asked U.S. Senior District Judge Lyle Strom to enter a substitute ruling or order a new trial. The motion complained that the jury had made a judgement about what it believed to be 'the spirit of the law' without due regard to the evidence actually presented.

The suit was originally filed against IBP, a company that merged with Tyson some years later.

Socially Responsible Investment indices hard to compare

A new report from the Nordic Partnership says that there is a limited role for the current SRI indices and evaluation questionnaires, largely due to a lack of standardised screening methods that make them hard to compare.

Torgny Krook, Senior Vice President of Nordea Institutional Clients said: “The report shows that the myriad of surveys on the market that evaluate environmental and social performance suggests a clear need to standardised methods and criteria. This would help investors interested in the social responsibility of companies as well as the companies themselves and other stakeholders, to navigate what is currently perceived as something of a jungle.”

Nordic Partnership Managing Director, Michael Brinch-Pedersen said: “It’s clear that SRI has the potential to become a more efficient driver for sustainability. However, the present lack of standards in the area indicates that a more clear direction is needed, perhaps led by public pensions funds, in order to mainstream SRI.”

Most serious charge dropped in Martha Stewart case

The judge in the fraud case against Martha Stewart has thrown out the charge of securities fraud, suggesting that a reasonable juror could not find beyond a reasonable doubt that it was true.

The prosecution had suggested that Martha Stewart had lied in order to boost the price of the shares in her company. Judge Miriam Goldman Cedarbaum of Federal District Court in Manhattan dimissed this argument.

Stewart is still accused of conspiring to hinder a federal investigation and lying to the authorities. These charges are considered by commentators to be harder to dismiss, and may still count as a major risk of a jail sentence and / or disqualification from holding office as the director of a company.

Kofi Annan calls on Japanese companies for leadership in citizenship

UN Secretary General Kofi Annan has told a group of senior business leaders in Japan that business has a key role to play in addressing the world's problems.

Japanese companies, he said, are demonstrating ever stronger leadership in the field of corporate citizenship, and are well placed to enjoy the benefits of 'responsible competitiveness'.

13 Japanese companies had so far signed up to the Global Compact, which aims to create a global ethical framework by embracing universal principles - in the areas of human rights, labour standards and the environment. This was not yet enough to reflect the weight of multinational corporations based in the country.

"Today, I call on all Japanese companies and business groups to support the Global Compact by committing themselves explicitly to its principles.

"Through the active engagement of Japanese companies and other stakeholders, I am optimistic that the Global Compact will provide a useful platform to advance corporate citizenship and help produce a more sustainable and inclusive world economy, so that globalization's benefits can be shared by everyone, including the world's poor."

Uganda: Business told that social responsibility means local shareholders

Companies in Uganda have been told that their operations must benefit the local communities within which they are based - and that this should mean making local people shareholders of the companies to give them a real stake.

Leonard Mpuurna, the managing director of the National Social Security Fund (NSSF) told businesses: "You should not only declare your dividends and then ship all of it away".

Mr Japheth Katto, the Capital Markets Authority chief executive officer, said:
"Corporate Social Responsibility should be looking at shareholding to have any relevant meaning for Africa and Uganda in particular".

Other speakers identified that key themes for corporate citizenship were transparency, tackling corruption and promoting human rights, as well as its management of its own employees and its environmental impact.

Japan: Auditing firms responding to growth in CSR

The major auditing companies are increasingly responding to the growth in interest in corporate social responsibility in Japan by creating centres of speciality, according to the Nihon Keizai Shimbun.

Tohmatsu & Co Ltd, the Japanese member firm of Deloitte Touche Tohmatsu, is to create a department specialising in CSR next month. The department will be staffed by about 20 experts in areas such as the environment and law.

ChuoAoyama Audit Corp has launched a CSR department to oversee environment and risk management on behalf of its corporate clients, whilst Japan's largest auditing firm, Shin Nihon & Co Ltd, has established Shinnihon Integrity Assurance Inc.

CSR FEATURES from the Internet

More tactics to aid ethics in business - 28 Feb 2004 FROM The Oregonian

Readers added their ideas -- equal parts prevention and vengeance -- to my suggestions on how to stymie corporate cheaters and criminals.

Regulatory rules should require public companies to use technology that makes operations so immediately transparent that no senior officers, like Enron's Jeff Skilling, can argue convincingly that they didn't know what was going on in their operations, suggested a public relations executive.

Read full story

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Responsibility without control

Article by Mallen Baker

How much can a company be held responsible when its customers voluntarily misuse products which, used properly, are benign or beneficial? It may sound like an arcane question, relevant only to a few problem industry companies. But it is at the heart, for instance, of the recent controversy over food companies and obesity, and many others crises that no-one saw coming until too late.

Traditionally, the answer has been not at all. The company has held that it can only be accountable for its own actions, and therefore it needs to focus on basic concerns, such as product quality, and leave the rest to the marketplace.

Even with this logic, the company has needed to take care. The earliest controversies in this area have tended to revolve around actions the company has taken that may be interpreted as encouraging misuse. So, for instance, the attack on the drinks companies over ‘alcopops’ was to do with the perceived intent of the companies to market products likely to appeal to underage drinkers – it wasn’t an attempt to blame the companies for the fact per se that some young people choose to drink underage.

Likewise, the initial assault on McDonald’s for its alleged role in encouraging a more obese population focused on the company’s advertising and information, arguing that these communications falsely led consumers to believe that stuffing burgers was a healthy option. The fact that the argument didn’t hold up in court doesn’t detract from the fact that it was seen as the weakest point of resistance upon which to mount an attack.

So the companies have always needed to be aware of the results of product mis-use, and to be clear that the promotions they under-take do not encourage malpractice.

It’s not as easy as it sounds. Effective advertising is often about treading a fine line. You get noticed by being a little bit shocking, a little bit creative or daring. Advertising should be able to be creatively provocative from time to time without a po-faced guardian of society stepping in. When Benetton ran its provocative adverts worldwide, using key social issues as themes, some people thought them inspiring and thought-provoking, some thought they were inappropriate uses of serious issues to promote clothes. But surely we wouldn’t expect a code of conduct to ban them.

Nevertheless, let’s accept that any socially responsible company is going to need to get to grips with the direct contribution it might make to encouraging problem usage of its products. What about the areas where this isn’t the case?

Surely the next test is the likelihood that normal usage of the product could reasonably be expected to progress in a number of cases towards problem behaviour. Take alcohol, for instance. It is a certain fact that a small percentage of people will, having initially started with normal consumption patterns, gradually progress towards problem behaviour.

There is a growing mood amongst companies that are sophisticated enough to see which way the wind is blowing that they want to do more to anticipate the trends, and to tackle some of the key problems. The food and chocolate companies know, for instance, that the growing trend towards obesity is not because more people are eating their food at the expense of a balanced diet. It is because people today are a lot less active than they were ten years ago. It is the lack of exercise, not the consumption of food, that is at the heart of the change.

It’s not enough, then, to simply go charging headlong into the issue to seek to address the problem at source. When Cadbury’s tried to promote products using vouchers to purchase school exercise equipment (following on the similar approach for computers for schools) they hit against a wall of condemnation from people who could only see that by making a link between the sale of chocolate and school, they were actually encouraging greater obesity by turning kids onto chocolate.

How the issue is addressed is a finely tuned judgement, which can have all sorts of potential pitfalls. In this case, the proposition (buy chocolate to get gym equipment for school) was still one whose main effect was to encourage the purchasing of chocolate, not the greater activity of children (who are not more inactive today because schools have a shortage of gym equipment). It doesn’t mean that food companies can’t be involved in programmes to encourage activity – it is absolutely right that they should seek to focus attention on where the real problems lie. But it does mean that they should seek to do so through programmes which are well targeted on increased levels of activity – and are not explicitly tied to a product promotion.

An even more challenging example of indirect impact stems from the recent (failed) lawsuit in the US targeted at the handgun manufacturers. The argument was that the companies bore some degree of responsibility for the incidence of gun crime, since they did not do enough to prevent their products from falling into the hands of criminals.

In this case, the companies simply argued the case that it was not their fault if people misused their products. This position may have been justified – unlike the previous examples, this is not a case where the normal use of the product could be reasonably expected to lead directly to this kind of misuse. The obtaining and using of firearms for crime is something done from start to finish in the face of very clear legal rules.

However, the same could be said in the question of how far the mobile phone companies should be held accountable when their products are stolen. Having initially started by defending themselves using much the same argument as the gun companies, they have quickly come round – with some pushing, it must be said, to the view that they could do more. Now, it is becoming standard that there are strong mechanisms in place for rendering useless a mobile phone that has been reported as stolen.

What could the gun companies do? Surely more than nothing.

So there are real expectations on companies now, and there are plenty of other issues lurking on the fringe of public debate waiting to become a mainstream concern.

Companies should ask themselves what is their exposure to the mis-use of their product? How well do they manage the things they directly control which could assist that mis-use, or the aspects of product design which could hinder it? How much could they use their influence to address some of the factors out of their control relating to the issue? And if there is a strong analysis behind the potential issue, how do they ensure that when the debate takes place, it does so well informed by which factors count?

These are questions that will be heard many times as the background music of a host of speculative lawsuits before the scope of expectations on business is finally settled.

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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