Business Respect - CSR Dispatches No 79 - 12 Dec 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 consider whether business can provide the answer to poverty through treating those at the 'bottom of the pyramid' as more viable consumers

In the news:

Feature articles on the internet:

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Topics:

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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 20th anniversay of the Bhopal tragedy has reminded us all of the consequences of the worst examples of corporate irresponsibility. Thankfully, although there have been many problems and disasters during those last 20 years, there have been no events on the same scale of human misery and suffering as that inflicted on the unsuspecting citizens of Bhopal. Whether this is a reflection of rising standards or just dumb luck is a key debating point.

Of course, the smaller tragedies destroy the lives, hopes and futures of people as well - and the movement to hold business accountable for its impacts in operations across the world continues to grow. This will be a key focus for the anti-corporate campaigners, as probably it should be. But there is something faintly depressing about the UK CORE coalition's recent attempt at a Parliamentary Bill, which seeks to hold all companies to account for the 'negative impacts' of their operations overseas. There is no suggestion there that the standard day to day practice of business may have positive impacts as well - in most cases providing a balance of impact that should be judged objectively. The worst cases provide plenty of ammunition for such views - but for these to provide the full context for evaluating the role of business is plain wrong.

In actual fact, if you look at regions of the world that were recently underdeveloped but are now thriving, it is the development through business activity that has played a key part in bringing about the transformation. C.K. Prahalad has gone further, and argued that business can play a much more direct and radical role in transforming the lives of the 'bottom of the pyramid' section of the population - those that live on 2 dollars a day or less. We give a review of some of these ideas in this issue.

Thanks to all those Business Respect readers that introduced themselves to Mallen during the BSR conference in New York last month. It was great to talk to so many different committed people working across the spectrum, and very gratifying to get all the messages of support and encouragement to keep producing this newsletter! You will notice we are studiously avoiding promises about getting the regularity of production back on track until this has been achieved - but all the encouragement helps to boost the determination!

The standard editorial email addresses have been under siege for some time now - experience suggests that if we even mention the phenomenon responsible a number of corporate firewalls will bounce the issue back for 'content violations' - and this has meant we know that we have missed some legitimate emails. We have now implemented filtering on the main account, but this doesn't seem to do more than skim the lightest percentage off. In the melee, it is clear that we do, from time to time, accidentally delete messages that we shouldn't. So we are reviewing what to do about this, and apologise to anyone that may have been affected. All we can suggest at the moment is that if you include CSR or 'Business Respect' in the email title, it will help us to spot that it is legitimate email in amongst the hundreds of junk messages.

The vote on the website has now had by far the largest number of people participating of any vote so far. You will recall that it goes:

The rising obesity problems in many countries will best be solved by:

New legislation to force food companies to reform their ways
198 (15 percent)

People taking personal responsibility for themselves and their families - we don't need people telling us how to live our lives
459 (34 percent)

All organisations, public and private sector, working together voluntarily to change behaviour
674 (51 percent)

1331 people have voted in total. Many thanks to all of you.

We are now changing the vote. More companies are producing social and environmental reports than ever before - but at the same time there are still complaints that the quality of such reports is variable, and their value is unproven. We thought we would take the opportunity to see what you think!

The new vote now reads:

The quality of Corporate social responsibility reports:

Is good - they generally have the information I need
Is variable - more robust quality standards are needed
Is poor - they don't meet my needs at all

As ever, these votes are only indicative, and we won't exercise ourselves unduly about all the possible variations of answers that could be possible to such a question!

Mallen Baker
Vanessa Wood
editors@mallenbaker.net

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CSR News 12 Dec 2004

Gap granted top slot for social report in Business Ethics Awards

Gap has won the Business Ethics Awards category for social reporting for "taking social reporting a quantum step forward by risking unprecedented honesty in reporting on factory conditions".

The report, described by corporate critics as "historic" and "pioneer work", was released in May 2004 and examined how well Gap's vendor code was being complied with by its suppliers. It was noted on release for its unusual level of candour reporting, for instance, that in Africa over 50 percent of factories had machinery without adequate safety devices whilst, in China, a majority of factories had inadequate storage of hazardous materials.

The company has admitted that executives had been worried over the release of such detail, but have said that the broadly positive reaction to the disclosure had vindicated the decision. Other companies are now feeling more confident about doing the same thing.

China: Government cancels OECD meeting on workers' rights

The Chinese Government has cancelled a meeting of union and business leaders scheduled to take place which was to have reviewed how multinational companies should adopt standards around the rights of workers in China. Visas for those expecting to attend the event were cancelled.

The event was sponsored by the Organisation for Economic Cooperation and Development (OECD) and had involved the Chinese authorities in its planning. The agenda had included a wide range of labour issues, as well as the use of the OECD guidelines for MNCs.

Union organisers reacted angrily to the cancellation. John Evans, general secretary of TUAC (the Trade Union Advisory Committee to the OECD), said: "It's the right time, not the wrong time to discuss the rights of workers in China."

Indonesia: Court refuses to bargain with Newmont over pollution case

Newmont Mining Corp will have to defend itself in court over the major Buyat Bay pollution allegations, Indonesia's environment minister has announced. Six of the company's executives have indictments against them in a case that now should be filed early in the new year.

Newmonth chief executive Wayne Murdy had, days before, visited Indonesia and had discussions with the government, but the government has said that there will be "no bargaining". The company is accused of having polluted Buyat Bay and making people ill through contamination to the food chain.

The company denies the allegations, and has argued that a long drawn-out process is not in the interests of any of the stakeholders of the action.

Australia: Amcor accused of collusion

Amcor required the former chief of its cardboard box division, James Hodgson, to be involved in systematic collusion in breach of the Trade Practices Act, according to allegations made by Mr Hodgson in the Supreme Court.

In a court statement, Hodgson said that the company had exposed him to the possibility to being a party to proceedings brought by the ACCC against the company and its directors. He is suing Amcor for nearly $2m, arguing that the company's actions had materially damaged his reputation and future employment prospects.

He is one of five former executives the company is in turn targeting for alleged breaches of confidentiality.

Malaysia: Companies lack awareness of CSR potential

Malaysia's major companies show little evidence of awareness of corporate social responsibility, with only one company so far having reflected its social responsibilities within its corporate mission, according to ACCA Malaysia.

The findings, published in ACCA Malaysia's study "State of Corporate Environmental and Social Reporting in Malaysia 2004", showed that few companies made reference to any sort of social or environmental policy statement within its reporting.

According to the study, 43 percent of the companies reviewed reported to some extent on social performance, with 26 percent promising that they would do so in the future. For many Malaysian companies, commitment to CSR is expressed in terms of charitable giving.

UK: Food and drink advertising aimed at children declines

In the face of controversy around the growing incidence of childhood obesity, the number of food and soft drink adverts aimed specifically at children has dropped by 20 percent.

According to a survey by Nielsen Media, 10,000 fewer such adverts appeared during TV children's schedules than during the previous year, bring it down to 34,703 screenings from around 45,000.

There have been growing moves in the UK Parliament to introduce measures to restrict the marketing of food considered to be unhealthy to children.

Starbucks aiming to boost environmental and social standard of coffee

Starbucks has said that it intends to considerably strengthen the environmental and social standards it expects of its coffee suppliers as it grows over the coming few years.

The company wants 60 percent of its coffee to be sourced from farmers who meet stringent standards within 3 years, according to chief buyer Alain Poncelet, who talked about the plans to the International Coffee Week meeting in Costa Rica.

The company will use its reward programme to encourage best practice in traditional areas of production, such as Latin America and East Africa.

India: Cola companies told to disclose product contents

The High Court in Rajasthan has dismissed a petition from PepsiCo and Coca-Cola against a directive that will require them to list the full contents of their products.

The directive had required the companies to provide a full list of the composition of the soft drinks "including the presence, if any, of pesticides and chemicals".

The companies argued that the directive should be struck down, on the basis that it would compromise their commercial confidentiality and that such measures should not be within the Court's competence to impose. The Court, on throwing out the petition, said the companies would now have to comply with the orders immediately.

Indonesia: Newmont pollution accusations fueled by new report

High concentrations of heavy metals have been discovered at the bottom of a bay which has been the centre of allegations of pollution by Newmont Mining Corp.

The Environment Ministry study, leaked to the press, suggests that the seabed is contaminated with arsenic levels at 100 times greater at a site used for dumping waste than in other parts of the bay.

A lawsuit is outstanding against the company, brought by islanders who have suffered health effects. Police have taken action against five company executives whilst investigations go on. The company stopped mining two years ago at the site, and denies wrongdoing.

Japan: Fujichiku chairman arrested over mad cow scare

The chairman of meat wholesaler Fujichiku, Yoshiharu Fujimura, has been arrested alongside six others on suspicion of fraudulently receiving more than 300m yen in subsidies following the mislabelling of beef.

The case revolves around an incident in 2001 where around 200 tons of imported beef was passed off as domestically produced in order to attract government subsidies in the face of incidences of bovine spongiform encephalopathy.

Fujichiku officials have apologised for the incident, and expressed regret over the arrest of the company chairman.

The case follows a number of other similar frauds.

US: Federal Trade Commission warns on misleading health claims

The Federal Trade Commission has sent letters to nine media companies telling them they must stop publishing adverts for products that have been the target of law suits recently for falsely claiming to guarantee weight loss.

The products, such as the 'Himalayan Diet Breakthrough' and 'Chinese Diet Tea', make claims that are simply unable to be substantiated. One, for instance, promises that consumers could lose up to 37 pounds over eight weeks if the product is taken three times a day.

FTC chairman Deborah Platt Majoras said: "These claims are about as credible as a note from the tooth fairy".

The challenged ads ran in nationally-known publications such as: Cosmopolitan; Woman’s Own; Complete Woman; USA Weekend; Dallas Morning News; San Francisco Chronicle; Cleveland Plain Dealer; Albuquerque Journal; and in Spanish-language publications, such as TeleRevista Magazine.

Ireland: Corporate practice celebrated in first CSR awards

The first awards for corporate social responsibility have been presented in Ireland by the Chambers of Commerce of Ireland.

The awards were established to recognise the work being carried out by small, medium and large Irish and multinational companies to improve the lives of their employees and to enhance the civic environment in which they operate.

IBM was presented with the category for the best CSR approach in a multinational company, with AIB getting similar recognition as a large company, and Deycome Computer Services as a small company.

Retailer Tesco was awarded for Best Environmental CSR Project, and Bank of Ireland succeeded in the category for Best Community CSR Project.

EBS was celebrated for its innovation in CSR, and eircom for running the Most Effective CSR Project.

UK: Many employees do not understand concept of CSR

According to jobs site Monster, 84 percent of employees either don't understand the concept of corporate social responsibility, or are unsure whether their company has any kind of active programme.

The findings make worrying reading for many companies, for whom a principal component of the business case for taking action rests on the impact it has on employees.

Brendan May, head of CSR at Weber Shandwick, said that the findings "should send a strong message to companies that they may need to do as much communicating to those inside their business about their CSR efforts as they are with the outside world.

"This survey highlights the urgent need to spread the CSR philosophy beyond boardrooms to the shop floor."

IT companies to collaborate on code of conduct working group

Cisco Systems, HP, Microsoft and Intel have announced the formation of a new working group to focus on supply chain implications of the recently announced Electronics Industry Code of Conduct.

The working group, which is being convened by Business for Social Responsibility, will develop mechanisms and tools to enable compliance with the code. The code aims to bring together approaches for monitoring suppliers' performance across a number of different areas of corporate responsibility, including workplace, environment and ethics issues.

Steve Darendinger, vice president in charge of supply chain management at Cisco, said: "We're committed to supporting socially responsible business practices across the globe. By collaborating with Intel, HP and Microsoft on this initiative we have deepened our relationships with both our suppliers and partners and expect to see greater productivity and accountability in the sector."

CSR FEATURES from the Internet

How corporates can save the planet - 9 Dec 2004 FROM Accountancy Age

CSR is no longer just an appendage to financial reporting but an issue increasingly driven by the marketplace. Business can no longer afford to be socially irresponsible. Reputation is everything.

The ignominious collapse of Andersen in 2002 reinforced how a link to a disreputable company can lead to a firm's demise. PricewaterhouseCoopers' decision last year to pull out of Myanmar - a nation heavily criticised for its human rights abuses - is a good example of how pressure from staff, clients and other stakeholders can convince a firm to act.

Read full story

Ensuring a Fair Deal for Workers - 30 Nov 2004 FROM China Daily

By design or by chance, multinational corporations (MNCs) have become a galvanizing force behind Chinese manufacturers' increasing adherence to the nation's labour, health and safety laws - and better communication between labour and management.

In a hotel conference room in Dongguan, Zhou Weidong has been conducting a training session for some 30 factory-floor managers regarding the methods to be used to keep work areas healthy and safe for their employees.

Read full story

Firms urged to take on more social duties - 22 Oct 2004 FROM Chinaview

Top multinationals called upon Chinese enterprises yesterday to take more social and environmental responsibility.

"The business of business is business mantra, focusing solely on maximizing profits for the sake of shareholders, has put a high price on the development of societies and resulted in the degradation of ecosystems," said Tachi Kiuchi, chairman of Future 500

Read full story

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Profitable poverty alleviation creates a ‘new frontier’ for corporate responsibility

Article by Mallen Baker

Last week, the Financial Times carried a story about how GrupoNueva aims to target the world’s poor as a potential market by aiming to design and sell affordable wood and water pipeline products to this vast segment of the world’s population. The company, it said, was aiming to show how profitability and corporate responsibility can go hand in hand.

The move is one of the first responses to the reasoning behind the recent book by C.K.Prahalad, ‘The Fortune at the Bottom of the Pyramid’. Prahalad’s premise is that the intelligent application of markets can create a real breakthrough in tackling global poverty. After all, he points out, for more than 50 years the World Bank, donor nations, aid agencies, governments and others have taken what steps they could – but have failed to eradicate poverty. It remains the world’s most visible and daunting problem.

There has to be a better approach to alleviate poverty. The innate potential of the poor to innovate and create enterprise needs to be unleashed. Companies should actively provide products and services which meet real needs affordably and profitably.

This is not about community investment programmes. With the best will in the world, global poverty will not be solved by corporate philanthropy. It is about offering choices to the poor, building self-esteem and creating a positive upward-spiral effect.

There are some basic assumptions behind this approach. The first of these is that companies do most damage to the poor if they ignore them and their needs altogether. The benefits of globalisation won’t be realised so long as the poor have no access to them. The second is that there needs to be real innovation to serve such markets – products developed for wealthy markets cannot simply be transferred to serve the ‘bottom of the pyramid’ markets. Thirdly – this is core business. A choice to focus in this area may be part of a company’s approach to corporate responsibility, but to be sustainable it needs to be run as any other part of a profitable business. It is not about charity.

Why have companies not rushed to embrace such concepts in the past? Predominantly, because of certain beliefs about the nature of these markets that are highly open to challenge.

One such belief is that there is no money amongst the poorest communities. And yet the aggregate purchasing power in poor economies can be immense. Economies of scale enter a new dimension when there are literally billions of people involved. Using a figure based on dollar purchasing power parity, China is a $5 trillion economy, for instance.

Another belief is that such markets are not brand conscious. In fact, the markets are very brand conscious, but they are also extremely value conscious. Aspirational brands are as important for these consumers as for many others.

The logic of developing products for poor consumers is, however, a different one to the traditional. The basic economics is based on small unit packages, low margin per unit with high volume. Products need to be designed to work in areas where infrastructures may be poor, and distribution mechanisms need to be rethought.

All well and good. But can it really work? At a recent Business in the Community event at the British Museum, Niall Fitzgerald gave several examples from the work of Unilever, which has been one of the most active companies in this area (the examples are also given in the book). For instance, in India more than 70 million children suffer from iodine deficiency. Hindustan Lever (HLL), a Unilever subsidiary, produced an innovative process for treating salt which meant that it would retain its added iodine content in spite of the harsh environmental conditions. It created an iodised salt which only released the chemical once the salt had been eaten and not before. The venture has proven to be both beneficial to health, and profitable for the company.

Another example is that of how Hindustan Lever addressed the soap market. Diarrhoea is a major cause of death, creating 2.2 million deaths annually. A significant difference to such figures can be made with some basic improvements in hygiene practices, even to such a simple level as washing hands with soap. Amongst children in developing countries, washing hands can reduce diarrhoea fatalities by 50 percent. So HLL realised that health-based education was going to be key to the development of their market.

The company approached village schools to educate children on the causes of disease, using ultraviolet dirt to show the difference between ‘clean-looking hands’ washed in dirty water, and those washed with soap. The children often became the most educated in the family on hygiene, and so began educating their parents. For a country where the population is significantly not reached by electronic media, such a process was a powerful way to get messages out.

There are many other aspects to how such markets can be made to work. There has to be a revolutionary approach to the use of technology. Eco-efficiency needs to be highly advanced. Distribution systems are completely different (HLL operates through 250,000 individual entrepreneurs in villages).

Julio Moura, GrupoNueva president told students at the London Business School that his company’s aim to reach to such markets represented ‘a new frontier’ for corporate responsibility. It could well be that his conviction in this area will be the first of many. Prahalad’s book could well turn out to be one of the most influential books of its time, and it is certainly required reading for anyone serious about the role of business in society.

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In the news from the latest issue

Nepal: Relatives of killed workers sue US firm KBR for trafficking

US: Proposed Alaskan mine survives people's vote

Merck accused of dressing marketing up as science

Australia: Business lobby group warns over carbon trading

India: Tata Motors threatens pull-out from West Bengal

US: Climate change resolutions making impact on companies

Japan: Details of carbon labeling confirmed

Canada: Wal-Mart has union contract imposed

India: Rising protests against factory building

US: Fraud will cost firms $994bn this year

US: American Airlines accused of safety breaches

Ghana: Call for companies to help clear up electronic waste

US: Disneyland demonstration over hotel worker benefits

Uzbekistan: Major retailers call for end of child labour in cotton

... more news stories

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Business Respect - most recent edition added on 17th August 2008