Business Respect - CSR Dispatches No 89 - 26 Feb 2006

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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 the fine points of the controversy around how the internet companies operate in China.

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/89.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 challenge of China is now the biggest issue most affecting responsible businesses that aim to be part of a prosperous future. The internet companies have provided a flashpoint, since they have been at the melting point between the expectations of the powerful players that shape their different business environments. But they won't be the last. And between now and the 2008 olympics, interest in China and the compromises involved will be intense.

It would be comforting to think that there is one reality, and all the companies need to do is to fit in with it. One does not have to condone authoritarianism in order to recognise that the world is not like that. Many great companies through history, starting perhaps with the East India Company that was the administrator of empire in India, have fallen from apparent invincibility because of their inability to understand and adapt to very different cultures and environments. There will be a lot more debate around what today's corporations will choose to do faced with some of the most difficult grey areas of globalisation as they try to avoid the same fate.

As ever, we have put these dilemmas to the vote with a new poll on the website. The question reads as follows: Internet companies faced with demands of censorship by China:
* Should do whatever they are required to do by the Chinese government
* Should obey laws but do whatever they can to uphold their home values
* Should refuse to compromise even if this means not doing business in China

We will be fascinated to see your views.

The current vote therefore comes to a close. The vote closes on the following result:

Companies that make products that kill can be socially responsible

If they seek to reduce harm and manage their other impacts - 548 (39%)
If they diversify out of harmful practices - 237 (17%)
Under no circumstances - 604 (43%)

Many thanks to the 1389 people who voted.

Mallen Baker
Vanessa Wood
editors@mallenbaker.net

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CSR News 26 Feb 2006

UK: Bankers lose appeal against controversial extradition

Three British bankers have lost their appeal against extradition to the US for charges of conspiring with Enron executives. The case has attracted considerable criticism of extraditin arrangements where the US can pursue white collar crime suspects under a law designed to be used in the fight against terrorism.

The three, Gary Mulgrew, Giles Darby and David Bermingham, formerly with NatWest, have pledged to take their case to the final arbiter of the House of Lords. They argue that the case, which covers actions taken within a UK company on UK soil should be heard within the UK. The extradition rules deny them the ability to challenge evidence before extradition.

The bankers deny the offence, arguing that they were unwitting pawn in a fraud orchestrated by the Enron executives. They have been advised that since they have contested extradition they will face two years in jail when they reach Texas whilst preparing their case.

New standards adopted by International Finance Corporation

The International Finance Corporation (IFC) has brought in new environmental and social standards that will replace existing codes on the impact of projects.

The IFC describes the new standards as more comprehensive than other equivalent codes. They introduce new measures on community health, safety and security, working conditions, pollution prevention, and social and environmental assessments. They have new requirements for consulting affected communities, biodiversity protection and grievance mechanisms.

The move has been taken in recognition of the failings of the former system when applied to complex projects. The update is now expected to lead to a subsequent update of the Equator Principles, the guidelines adopted by a number of financial institutions engaged in global project finance.

New Zealand: Major action on destructive trawling announced

In a deal struck between the government and major fishing companies, around one third of New Zealand's offshore waters is to be declared off-limits to the practice of bottom-trawling.

Bottom trawling consists of the trailing of heavy nets across the sea bed, a process which in addition to catching fish can also destroy coral and other organisms that can take hundreds of years to recover.

The New Zealand Fisheries Minister, Jim Anderton, said that the agreement constituted a 'win-win' for conservationists and fishermen. Environmentalists, who seemed to have been caught unprepared by the deal, gave an initial cool reception to the deal. Greenpeace said that 'the devil is in the detail' and said that the agreement did not cover all the vulnerable areas that might suffer from bottom trawling.

Fishing companies said that the move signalled a new 'proactive' phase for the industry in how it dealt with environmental concerns. They have argued that there is more to unite fishermen and environmentalists - fishermen don't want to catch all the fish today and have none tomorrow. However, the companies still criticis environmental groups for 'misinformation'.

Microsoft faces new EU antitrust action

Some of Microsoft's key competitors have filed a new complaint accusing the company of a wide range of antitrust abuses. A group made up of IBM, Oracle, Sun Microsystems, Nokia, Red Hat, RealNetworks, Opera, Corel and Linspire have said that Microsoft is continuing to abuse its dominant position in the marketplace.

The new complaint focuses on the Microsoft Office suite. The companies argue that Office has been designed not to work smoothly with competitor packages, such as the Star Office programmes. This has prevented free competition that would enable rivals to progress with their alternative offerings. Microsoft has said that its next version, Office 12, will use the web markup language standard XML, which should answer such criticisms - a suggestion which the companies refute.

The company is currently under threat of fines up to euro 2m a day due to its non-compliance with its 2004 antitrust ruling.

US: Defence contractor pleads guilty on bribery

A US defence contractor Mitchell J. Wade of MZM inc. admitted that he had tried to illegally influence government officials, and had given more than $1m in bribes to the convicted congressman Rep. Randy Cunningham.

He also identified Reps. Virgil H. Goode Jr. and Katherine Harris as other targets for illegal campaign donations. He said that he had provided further benefits to an anonymous defence official in order to further the commercial interests of his company.

The company was described by the US. attorney for the District of Columbia, Kenneth L. Wainstein, as having been 'apparently' an American success story that had, in fact, been built through corruption.

Nigeria: Shell fined $1.5bn for environmental damage

Nigeria's Federal High Court has ordered Shell to pay a major fine for environmental damage to the homeland of the Ijaw in the Niger Delta.

The ruling confirms the award, which was originally made in 2000 and after which Shell had refused to pay the fine. Ijaw militant groups have since attacked the company's facilities and have kidnapped workers who are being held hostage.

Shell has said that it remains in the belief that it has strong grounds to appeal the compensation order. It has said that much of the environmental damage in the Niger Delta is caused by sabateurs.

Liberia: Bridgestone / Firestone hit by rubber tappers' strike

Rubber plantation workers at Liberia's largest plantation have gone on strike over low wages and child labour. 6,000 workers at the million-acre site stopped work to demand improved pay and conditions.

According to the workers, they are required to deal with unfeasibly large numbers of trees per day, forcing them to pull in other family members to help meet quotas. Latex has become the country's top export since bans were imposed on its timber and diamonds by the UN.

The worker action follows a lawsuit brought in December against the company in the US alleging virtual slavery conditions at the plantation.

Newmont settles Indonesian pollution suit for $30m

Newmont Mining Corporation has agreed to pay $30m to the Indonesian government to settle a lawsuit over alleged pollution of a bay with arsenic and mercury. A further criminal trial against the company is ongoing.

The suit came about after villagers near the company's Buyat Bay mine complained of a variety of ailments that they believed to be linked to discharges from the mine. The company has denied the charges, and the settlement includes no admission of guilt.

The mine at Buyat Bay closed two years ago, although the company operates another larger mine at Sumbawa. It had earlier admitted that a separate incident of the release of mercury vapours took place, although it said these had not been harmful to the environment.

Wal-Mart pledge on sustainable fish supplies

Retail giant Wal-Mart has said that it is aiming towards all of the fish it sells in North America being sourced from sustainable sources, certified by the Marine Stewardship Council.

The move, the latest initiative in the company's bid to improve its profile and performance on CSR issues, is potentially extremely significant in adding positive momentum on sustainable fishing, given its power and reach.

Wal-Mart has said that all of its US fresh and frozen fish, excluding farmed fish, will be MSC certified. The target will take some time, between three to five years, to achieve given the small number of fisheries currently so rated.

Australia: AWB Managing Director first to resign over Iraq kickbacks scandal

In the face of the Cole inquiry into AWB's payment of Aus$300m to Saddam Hussein, the AWB board has begun to take expected action to rebuild public confidence in the company, resulting in the resignation of managing director Andrew Lindberg.

Lindberg is likely to be the first of a longer list of resignations following the scandal which has wiped around one third from the value of the company's shares over the last month. Shareholders are considering a class action against the monopoly wheat exporter.

The company is said to have responded to the invitation of Iraqi officials to inflate wheat prices enabling them to then grab the excess to help fund Saddam's regime.

The backlash to the scandal may, according to the Prime Minister, result in AWB's monopoly status being removed.

Denmark: Prime Minister attacks companies aiming to profit from cartoons crisis

Danish Prime Minister Anders Fogh Rasmussen has labelled as 'disgraceful' the attempts by certain European companies to disassociate themselves from Denmark following the controversy over the satirical cartoons of the Prophet Muhammad published in a Danish newspaper.

Mr Rasmussen did not single out any particular business, but his comments were made in reply to a question relating to the actions of both Nestlé and Carrefour in distancing themselves from Denmark. He said that attempts to gain commercial advantage 'at Denmark's expense' had struck at the hearts of all Danes.

Danish companies have been hit by a strong boycott in a number of countries, particularly in UAE, Qatar and Kuwait. Companies such as toymaker Lego and Novo Nordisk have been targeted. Novo said that the boycott had so far cost the company around DKr 200m after its insulin products were removed from shelves in Saudi Arabia.

Nestlé took action last week when consumers in the Middle East were told - incorrectly - that some of its products originated in Denmark. The company took out an advert pointing out that its products were produced in Switzerland, not Denmark.

CSR FEATURES from the Internet

Suits on Overtime Hitting Big Firms - 21 Feb 2006 FROM Washington Post

Large employers around the country, from retail giants Wal-Mart Stores Inc. and Lowe's Cos. to tech firms IBM and Electronic Arts Inc., are being hit with state and federal lawsuits alleging that they systematically failed to pay overtime to hundreds or even thousands of employees.

And many of the cases are bearing fruit.

Read full story

Multinational companies taking on more social responsibility - 18 Feb 2006 FROM China Daily

Multinational companies are taking on more corporate social responsibility in China, according to a report released on Friday by the Transnational Corporation Research Centre under the Ministry of Commerce.

It said that many such firms had brought to China not only capital, technology and management, but also a sense of social and environmental awareness.

Read full story

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Google's growing pains

Article by Mallen Baker

According to Reuters, Yahoo has now provided evidence that has jailed a second Chinese dissident writer. Allegedly, Yahoo's co-operation with the Chinese police led to the arrest in 2003 of Li Zhi, who was sentenced to eight years in prison after trying to join the China Democracy Party.

The news comes as the latest update in a difficult time for some of the internet's most successful brands as they have struggled to come to terms with the demands of operating in China. The one that has gotten most heavily in the neck, of course, is Google.

One of the internet's best supported sports of the moment is popping along to www.google.cn to type in various phrases to see just how tame the resulting information is. Google has agreed to self-censor its search engine in China to remove dangerous material from searches such as 'tiannamen square', 'taiwan independence' and so on. The move has caused outrage on a scale that must leave the company founders - who established the company on a wave of high ideals - absolutely horrified.

Google has now been transformed from the triumphant innocent - showing that you can challenge old business models whilst saving your soul - into just another perceived corporate villain. It is learning the hard lesson that as far as campaigners in the west are concerned you don't have to be the worst offender to become the main target - you only have to be high profile and potentially vulnerable to attack.

There is no doubt that the principle of the criticisms is right. Freedom of information should be a prerequisite in a civilised society, and history suggests that regimes whose survival depends on the rigid control of information eventually fall.

To acknowledge that fact is not the same as coming to a conclusion on what Google, or indeed Yahoo and Microsoft, should do about it. The critics are in the enviable position of having little to lose in their contention that western standards of freedom of speech should prevail across the world - and to vilify anyone whose actions are not in line with this. Things are not so easy on the other side of the fence.

On the one hand, Google has a real commercial imperative here. The company will survive or die on its ability to remain the global search engine of choice of the internet. China's huge population will, over a foreseeable timescale, become incredibly important. There is every chance that within the lifetimes of its founders, more internet searches will be carried out in Chinese than in English.

With the previous status quo, Google was losing this audience. Its government-filtered site was consequently slow, and losing market share hand over fist to its local competitors.

What is a company to do? If government control over information accessible to its citizens is such a big deal, governments could agree international economic sanctions to send that as a powerful signal from the world community. They don't. The signal that governments send is that, notwithstanding the need to raise issues of human rights from time to time, China should be considered as open for business.

When there are laws that we support, we have no hesitation in insisting that companies must obey the law. Now, however, when there are laws that we think are wrong, we are putting the company in the role of - what? Agent of empire? Global policeman? Predictably, the companies are less than keen to voluntarily destroy their ability to compete in this key market in order to fight for something that their own governments seem to have so little political will behind.

Google, of course, is a values-driven company whose mission focuses on the spread of information. The company has been faced with the reality that such missions are not always so simple to achieve, and you need to make a judgement that some of your stakeholders will hold up to be a betrayal, whichever way you go. The company's contention that it believes it furthers its mission more by being present in China than it does by not is at least a rational response to a set of unpalatable choices.

It's not as though Google has been wholly unprepared to take a stand. It was recently criticised by the Chinese for removing the description on Google Maps of Taiwan as a province of China. That move led to calls for a boycott of Google by Chinese citizens - a call to which at least some will have responded. The episode highlights how some of these tricky product issues across national boundaries are really about the process of resolving dilemmas, rather than imposing a self-evidently correct response to a demonstrable evil.

That may be small comfort to Google. There have, after all, been previous cases where companies that were technically correct nevertheless suffered the reputational damage of being held to be wrong. Shell and the Brent Spar comes to mind. A company whose brand values are so heavily focused on freedom of information and social benefit is particularly susceptible - Google faces the unpalatable prospect of becoming the Nike of the online world. Nike has probably become one of the best companies in terms of addressing labour rights in the supply chain - but it is still targeted and remembered because it is high profile. So it may prove to be here.

Microsoft, which has the most experience of navigating through the grey areas that lead to routine vilification, recently launched its clarified policy on its operations with blogs in China, or any other country where such issues apply.

In particular, it said that it would remove access to blog content only when it receives a legally binding notice from a government indicating that the content is in breach of local laws. That access will be removed only in the country issuing the order, and that the user concerned will be notified that this action has been taken. It is an approach that plays to the need for the greatest transparency possible under the circumstances, and deserves to be supported.

In the mean time, there is cause for optimism about the cause of freedom of speech in China which, hard choices for corporates notwithstanding, is providing the censors with even more headaches than the corporates. According to the New York Times, Microsoft alone carries around 3.3m blogs in China, to which you can add 10m carried on other services. Three years ago, there were none. That is a growth in expression that no censor will ultimately be able to control.

The trick for Google, Yahoo and the rest, will be to behave in such a way that positions them well in that growing market without destroying their licence to operate, either at home or abroad. People have strong views - but anyone who thinks this is an easy task is kidding themselves.

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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