Business Respect - CSR Dispatches No 90 - 12 Mar 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 review the interim report of the UN special representative on business and human rights, and look at the dilemma facing ExxonMobil in Chad.

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/90.html.

Copyright 2006 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

One of the biggest challenges for global businesses is how they operate in countries where some fairly basic rules are either absent or routinely not enforced. This is the message contained within the recent interim report of the US Special Representative of the Secretary-General on the issue of human rights and transnational corporations, John Ruggie. You'll find a short commentary on the interim report in this issue.

Probably the most challenging dilemma you'll find on this theme is the current facedown taking place in Chad between the oil companies, the World Bank, and the Chad government. An innovative and hopeful agreement to ensure that, within one of the most corrupt countries on the planet, oil revenues would genuinely benefit the people of Chad has just been unilaterally torn up by the Chad government. What comes next? See the expanded commentary also below.

In the mean time, you have been responding strongly to the new vote placed on the website around the issues covered last time on the activities of the internet companies in China. So far, there is one of the closest votes ever for one of these polls. The current state of play:

Internet companies faced with demands of censorship by China

Should do whatever they are required to do by the Chinese government - 14 (9%)
Should obey laws but do whatever they can to uphold their home values - 67 (47%)
Should refuse to compromise even if this means not doing business in China - 63 (44%)

144 people have so far voted. Thanks to those that have taken part - still plenty of time to make your views known!

Mallen Baker
mallen@mallenbaker.net

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CSR News 12 Mar 2006

Microsoft response to EU 'entirely inadequate'

The response to date by Microsoft in meeting the terms of the European Commission's anti-competition ruling are 'entirely inadequate' according to the Commission, and may result in the company being fined up to 2m euros a day.

The company denies the charge, and says that the actions it has taken not only meet, but surpass the requirements of the ruling that it open up its Windows operating system to rival developers.

The EC's recent report on progress noted that parts of the latest documentation provided by Microsoft were 'entirely inadequate, devoted to obsolete functionality and self-contradictory'. The company's approach had been designed to maximise volume whilst minimising useful information.

A hearing on the ruling is due to be heard on 24th April.

Ghana: Call to companies to redefine corporate social responsibility

The Chief Executive of the Ghana Chamber of Mines, Joyce Aryee, has called on companies operating in Ghana to see their corporate social responsibility as a core component of their business.

Companies needed, she said, to focus on ethics, transparency, good governance and environmental management. They have to strengthen their relations with all of their various stakeholders.

The comments were made at the signing by mining companies of a code of conduct, aimed at regulating their activities within the principles of responsible business. The Code requires the signatories to uphold fundamental human rights, to respect the culture and customs of their employees and local communities affected by their actions. It includes provisions on good governance and consultation with local communities. Signatories include Newmont Ghana Gold, Bogoso Gold, Chirano Gold Mines, Ghana Manganese Company, Ghana Bauxite Company and the Abosso Gold Mines.

US Contractor found guilty of $3m Iraq fraud

A US federal court has convicted Custer Battles, a contractor that carried out work in Iraq immediately following the end of the war, guilty of defrauding the US government. The case is the first of a number due to be heard under the Federal False Claims Act.

The Act allows company insiders to file a suit on behalf of the government, being rewarded with a share of the damages awarded against the company. In this case, the suit was brought by two former associates who said that the company had been 'blatant' in its activity. They will now receive more than 25 percent of the $10m damages awarded.

In one of the examples heard by the court, it was shown that the company had submitted an invoice for a helipad for $80,000 more than it had actually cost. The company was also criticised for the quality of its work. At one point, it was said, 34 of 36 trucks the company had provided to the military were not working.

Coca-Cola calls on UN to investigate human rights in Colombia

Coca-Cola has asked the UN's International Labour Organisation (ILO) to investigate allegations of human rights abuses in Colombia that have dogged the company over recent years.

The company has denied the accusations of campaign groups that its bottling plant in Colombia has supported the use of paramilitaries against union leaders, along with other abuses. The claims have led a number of US universities to boycott Coke products.

It carried out its own investigation last year, which many dismissed for not being independent. The company also points out that two different judicial inquiries in Colombia had found no evidence to support the allegations.

Merck cuts AIDS drug price 20 percent in developing world

Merck has said that it is to cut the price it charges for its anti-AIDS drug Stocrin by 20 percent in poor countries. The company says that the move now places its pricing of the drug very close to the cost of generic alternatives.

According to Merck, the lower price has been made possible by new efficiencies and cost savings introduced through changes to the manufacturing process. The new price will be 76 US cents per day, down from its previous price of 95 cents.

Stocrin is generally used for patients where a resistance has developed to first-line medicines, or where side effects have been particularly severe. The drug is provided in combination with other antiretrovirals in order to avoid the risk of newly resistant viruses developing.

Parmalat founder asks investors for forgiveness

Calisto Tanzi, the disgraced founder of Parmalat, said that he wanted investors to forgive him for the events that led up to the company's collapse three years ago.

Tanzi was appearing in court along with 15 others on charges of market rigging, false accounting and contravening stock market regulations. More than 100,000 small investors lost their money when the company went bankrupt.

Japan: Livedoor scandal calls Global Compact membership into doubt

The internet firm Livedoor which has been hit by a corruption scandal is to have its membership of the Global Compact called into question by other Japanese members.

The company's former president Takafumi Horie and other executives have been indicted for illegal securities transactions. The recent events may lead the company's membership of the Global Compact to be decided at a forthcoming meeting of its 41 Japanese corporate members.

A spokesman for Livedoor, which now has new leadership, has said that the company supports the principles of the Global Compact and wishes to remain a member.

International citizenship network launched

A new international business network has been launched by Accountability and Boston College. The Global Leadership Network (GLN) is a membership organisation with the objective to improve the impact of corporate citizenship initiatives.

The GLN is chaired by IBM and includes among its members British drinks giant Diageo, car manufacturer General Motors, General Electric, the food producer Cargill, the technology innovator 3M, the Japanese technology manufacturer Omron, the Mexican cement company Cemex, the human resources management company Manpower and the logistics company FedEx.

The GLN will assess companies on how to develop corporate responsibility strategies that are appropriate and relevant to their business, rather than simply complying with external standards.

Australia: 27 companies face exploitation action

A Federal Court action has been launched against 27 companies accused of exploitation as anti-sweatshop protests marked Melbourne Fashion Week.

The action, brought by the Textile Clothing and Footwear Union of Australia, alleges that the companies are in breach of laws designed to protect outworkers - people who work from their homes - who the union says are paid as little as $3 per hour.

Papua New Guinea: Illegal logging and corruption destroying largest forest

A multi-million dollar logging industry dominated by Malaysian interests is destroying the largest remaining area of primary tropical forest, according to the US Forest Trends report 'Logging, Legality and Livelihoods in Papua New Guinea'.

The report describes working conditions as 'modern-day slavery' and says that the forest is being unsustainably exploited by an industry that focuses on harvesting natural areas rather than plantation production.

The main markets for logs produced are in China, Japan and Korea. Much of the produce is processed in China for eventual export to Europe and North America.

GM and Toyota end collaboration on fuel cells

General Motors and Toyota have ended their partnership on the development of hydrogen-powered cars. They have signed a technology-sharing pact that does not include fuel cells but focuses instead on safety.

The two companies have been collaborating on the next generation of cleaner fuel vehicles for the last seven years. They have been unable to agree terms for sharing the intellectual property behind the development. The move will mean that General Motors, which has been under considerable pressure due to falling sales, will have to take the full cost of development onto itself.

Hydrogen powered fuel cells remain the great hope for the industry, giving the potential for zero harmful emissions from motor cars. At the current state of the technology, hydrogen cannot be produced in sufficient quantity.

UK: Women still earn 17 percent less than men at work

A report released by the Women and Work Commission has found that women in full-time work in the UK are still earning 17 percent less than their male counterparts.

The report was welcomed by Prime Minister Tony Blair, who drew attention to the gap between the strong performance of girls at school and their subsequent reward in the workplace. He said that the report was 'a ground-breaking piece of work'.

The Commission made a number of recommendation for extra government support and improved vocational training. It did not, however, go along with union demands for the introduction of compulsory pay reviews.

CSR FEATURES from the Internet

Big companies 'at risk' on kickbacks - 8 Mar 2006 FROM The Age

Some of Australia's biggest companies risk becoming embroiled in an AWB-style kickback scandal by trading in high-risk developing country markets without any rules banning bribery or regulating facilitation payments.

A study has revealed that only half the companies in the S&P/ASX 100 have policies prohibiting giving and receiving bribes. Only one in four has rules regarding "facilitation payments" or "speed money" in far-flung areas, especially when local units operate independently from parent management.

Read full story

Corporate responsibility can enhance credibility - 2 Mar 2006 FROM China Daily

Three very different stories I heard recently have impressed me deeply for the same reason: the understandings of corporate responsibility they contained. First, a Danish businessman told me that he has to fill three forms and send them to his company's head office every year. One is a form stating assets and liabilities. The second is a financial statement. The third is form assessing the firm's corporate responsibility.

The corporate responsibility form is a novelty to many Chinese entrepreneurs, though they are of course familiar with the first two.

Read full story

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Mapping out the way ahead for business and human rights

Article by Mallen Baker

John Ruggie, the UN Special Representative of the Secretary-General on the issue of human rights and transnational corporations, has produced his interim report.

Appointed in July 2005, Ruggie was tasked with reviewing the state of play following the failure of the proposed UN "Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights". His interim report gives an overview of his work to date, and with his focus for future strategic directions.

In pursuit of the latter, Ruggie gives his own reflections on the failure of the Norms. The Norms, drafted in treaty-like language, set out human rights principles for companies. The text contained a summary of rights that may be affected by business, positively and negatively, as well as the collation of source documents from relevant human rights instruments. Ruggie says that had the Norms confined itself to this content, coupled perhaps with a set of benchmarks of what practices business should avoid, the story of the Norms may have been very different.

As it was, he says, the Norms exercise "became engulfed by its own doctrinal excesses". It made exaggerated legal claims and created confusion. In particular, the Norms were promoted as being non-voluntary in nature whilst also representing no more than a reflection and restatement of existing international legal principles. And yet, with the exception of certain war crimes and crimes against humanity, there are no generally accepted international legal principles that do this. The legal authority claimed for the Norms was therefore utterly spurious.

In addition, the Norms were unspecific about what human rights obligations companies, rather than States, actually have. In certain instances, the Norms end up imposing higher obligations on corporations than on States. Not only could this not be justified, but it could also undermine the primary role of the State as being the legitimate agent for the protection of human rights.

Ruggie notes that it is all too easy for the debate that reached stalemate over the Norms - with the business sector opposed and the NGOs in favour - to be repeated. There is hard work to be done in defining better the appropriate instruments for progress going forward that will enable the parties to reach agreement over the substantive issues.

There is a real need for social norms of some kind - particularly where corporations are operating in countries where the capacity or willingness to enforce legal standards is lacking. To move this forward, Ruggie has asked the International Organisation of Employers to carry out work identifying effective ways for companies to deal with dilemma situations encountered in 'weak governance zones'.

One of the most difficult areas is just what constitutes corporate complicity in human rights abuses - a question which is part of the 2-year mandate that Ruggie has been given. Ruggie believes that the most explicit definition of complicity so far was that provided by the US Court of Appeals in the Unocal case that was brought under the Alien Torts Claims Act. The ruling stipulated three criteria: giving practical assistance to the actual perpetrator of a crime; the requirement that this assistance had a substantial effect on the commission of the criminal act; and the fact that the company knew or should have known that its acts would result in a possible crime even if it did not intend for that crime to take place.

Ruggie says he will continue to follow the work of the expert panel convened by the International Commission of Jurists, and to work with legal teams in different countries to examine case law there.

What he does believe is lacking at the moment across this agenda are any impact assessment tools to help companies identify their human rights impact at a national and project level. Although Ruggie believes that the development of such tools requires resources beyond the scope of his mandate and resources, he does highlight two ongoing projects of interest.

The first is the human rights compliance assessment tool developed by the Danish Institute for Human Rights. It focuses on a company's compliance with human rights instruments, using indicators derived from more that 80 instruments and conventions.

The second is a project by the International Finance Corporation to develop an actual impact assessment guide. The guide will aim to review the entire spectrum of human rights, focusing on areas where the responsibilities of companies are clearest, and providing both country and project level guidance.

Overall, Ruggie's report is pragmatic and committed to progress. NGOs for whom the Norms became an article of faith will be disappointed by the full stop this report effectively places behind this initiative. But they should be heartened by the practical commitment to finding ways forward that will actually work on the ground and improve the human rights performance of companies and states.

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Exxon ponders the challenge of Chad

Article by Mallen Baker

ExxonMobil is a company that is probably used to the feeling that whatever it does, it can never win in the eyes of its many critics. It is used to difficult and controversial choices. It faces on of its most difficult ones now in Chad.

The government of Chad, in blatantly breaking its agreement with the World Bank over the development of the Chad / Cameroon pipeline, has presented the company with an unenviable dilemma. It either continues to operate with funds being directed into the government’s direct control – destroying the carefully crafted mechanisms designed to ensure that the country’s poor benefit from the oil wealth. Or it seeks to uphold the legal agreement, probably resulting in their operation being closed down.

The original agreement was launched in 2000, between the government of Chad, the World Bank, and a consortium of oil companies strongly led by Exxon. At that point, the companies were clear that the risks of operating within one of the most unstable business environments in the world were greater than they were prepared to bear. They would only take part if the World Bank was involved, and an agreement reached that would provide stability and its lower risk-associated costs.

Chad is considered to be one of the two most corrupt regimes in the world. The inflow of oil wealth would inevitably end up fuelling the military. The agreement was designed to avoid this. It required a commitment from Chad to spend revenues for limited development purposes, and put in place mechanisms to ensure transparency in how the funds were managed. 10 percent of the revenues were to be placed in a Future Generations fund, with the remainder going to public health, social welfare, education, infrastructure, rural development and the environment.

Not that the agreement was uncontroversial. Some of the provisions make it clear if laws passed by the Chad government would contradict the agreement, it would be the agreement that would have legal force unless the parties agreed otherwise. Interestingly, Amnesty International in September last year produced a report condemning these provisions as a threat to human rights, since it believed they would potentially prevent the Chad government from taking actions to improve human rights for its citizens. This has hardly turned out to be the issue.

What actually happened was that the Chad government announced in October that it intended to break the agreement. It snatched the cash from the Future Generations Fund and included ‘security’ as one of its priority sectors to be the recipient of funds. In effect, it unilaterally abolished the ability of the arrangement to put oil revenues to the service of the poor, rather than using it to prop up a struggling regime.

Negotiations to date between the World Bank and the government have come to nothing – although some commentators believe that a deal of some sort is likely. The rhetoric from the government remains fierce – this was an agreement for fools. The government, which has run out of cash and faces growing unrest within its own military, has clearly decided that now is not the time to bother with legal niceties. That being said, for the huge political damage that they have inflicted upon themselves, they have so far reaped rather small amounts of money.

Exxon and the other consortium members will soon have to make a choice. If no agreement is forthcoming between the government and the world bank, they will have to decide whether to accede to demands that oil revenues are to be paid directly into government coffers rather than into an escrow account.

If they do, they will carry on and make lots of money. They will also get the furious response of a number of global and domestic observers – and every human rights abuse that the government of Chad carries out as it enters a politically unstable time will be laid at the companies’ doors. If they use the terms of the legal agreement to seek to enforce the provisions that Amnesty may now be feeling slightly warmer towards it seems likely that the government will simply pull the plug and take the consequences. With the rising price of oil, it may well be the case that less scrupulous companies with less influential stakeholders will be happy to take their place.

In any case, the episode has been an unfortunate indicator of the real challenges that businesses face in operating within business environments where contributions to the government are viewed as complicity rather than a civic duty.

From a purely business point of view, there seem to be no ways forward for Exxon that do not carry a significant cost. The company’s shareholders should be alive to the significantly wider implications to business value creation of allowing Chad to act unilaterally to destroy any hope for agreements that stick. Unfortunately for the people of Chad, investors will now strongly question whether it is a place where business could ever be done.

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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