Business Respect - CSR Dispatches No 91 - 26 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 consider the emerging issue of tax and CSR, and we reflect on the new EU business alliance.

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/91.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

The launch of the European Alliance for CSR has predictably led to a great deal of noise and fuss from some of the NGOs complaining that a business-led approach is somehow a bad deal, and that the real agenda should have been new legislation to force businesses to be responsible.

The dialogue is as depressing as it is predictable. It should surely be straightforward enough to understand that legislation and CSR are two different things. Legislation is designed to enforce minimum standards. CSR is about best practice, and finding opportunities to engage the things that business traditionally do best in the solving of problems. A government can no more legislate for best practice than it can repeal the laws of gravity.

There is no moratorium as far as I am aware against new legislation where it is shown that existing measures fail. The problem of course is that framing good quality legislation is a lot harder than it looks. It's all very well to say that companies should be held accountable for doing bad things abroad. However, legislation that, for instance, seeks to hold companies accountable when states refuse to meet their human rights obligations is problematic if it by implication puts the companies into a role they are neither practically nor democratically suited to play. Legislation in this area is not slow in coming because bodies like the EC go for voluntary CSR action instead - it is slow in coming because it is genuinely hard to do.

The fact that the UN special representative on business and human rights, John Ruggie, has - to the NGOs dismay - effectively buried the UN Norms precisely because of such problems highlights the need to move beyond the sterile voluntary vs statutory debate.

The fact is that a business-led movement to address corporate responsibility may make some real progress if it is well implemented. The NGOs should welcome the European Alliance as potentially making a positive contribution. Likewise, the debate around well crafted and effective legislation to establish minimum standards will continue unabated. But it seems to me there are now more examples of good business action on CSR than there are of thoughtful proposals on legislation.

The trouble is that many of those NGOs are simply anti-corporate, and this makes it difficult to see how they will ever understand what good legislation could look like. Friends of the Earth, for instance, in a recent corporate campaign leaflet said that 'business can never voluntarily be part of the solution'. On that basis, it is not surprising that it would look to every initiative, every panel, every proposal, as an opportunity to get through measures that will force business to do what they want it to. The fact that such an approach may not be the best way to achieve the desired ends is obscured by the lack of clarity with which the other side is viewed.

Ultimately, social and environmental sustainability is a shared objective. Solutions will either be common solutions, or they won't be solutions. It's time to move on.

In the mean time, other areas are emerging into the CSR arena. Most recently, Sustainability launched its new report on why tax payment is about to take its place as a central CSR issue. The report is reviewed this issue.

On the website, the section devoted to CSR resources has been updated. Resources added this fortnight are links to the following:

* Equator Principles - March 2006 Revision
* John Ruggie's interim report
* The New IFC Standard - Will It Raise or Lower the Bar?, Michael
Warner, Overseas Development Institute
* Under the Influence - Exposing undue corporate influence over
policy-making at the World Trade Organisation, Action Aid

Voting on the current poll continues. The current tally stands at:

Internet companies faced with demands of censorship by China:

Should do whatever they are required to do by the Chinese government
28 (10 percent)
Should obey laws but do whatever they can to uphold their home values
146 (53 percent)
Should refuse to compromise even if this means not doing business in China
100 (37 percent)

Thanks to the 274 people that have voted so far. Still time to make your view known!

Mallen Baker
mallen@mallenbaker.net

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CSR News 26 Mar 2006

Business collaboration on carbon capture and storage

A new business association has been launched to promote carbon capture and storage technology, and has started by calling for greater government leadership on the issue.

The new association is the Carbon Capture and Storage Association, and its founding companies are Air Products, Alstom, AMEC, BP, ConocoPhillips, E.ON UK, Mitsui Babcock, Progressive Energy, Schlumberger, Scottish & Southern Energy and Shell. It will promote technology for permanently storing carbon dioxide (CO2) underground. It was initially established in October last year.

Carbon Capture and Storage has provoked intense interest, representing as it may a means of prolonging the life of fossil fuel reserves without the increased impact of emissions on the global environment.

Draft Equator Principles revision produced

The Equator Principles have been revised to reflect the experience of the last few years as well as to incorporate the recent updated International Finance Corporation (IFC) standards.

The current adopters of the Equator Principles have been asked to re-adopt them under the new framework by 30 April this year, with the new provisions coming into force on 1 July.

The Principles represent an industry approach for financial institutions in determining, assessing and managing environmental and social risk in project financing.

European CSR Alliance launched to NGO catcalls

The European Commission has announced the launch of a new European Alliance for Corporate Social Responsibility which will act as an umbrella organisation for new or existing CSR initiatives by large or small companies. The move has been criticised by NGOs who have argued for more regulation.

The move follows the work of the European Multi-stakeholder Forum on CSR which presented its final report in 2004. The Commission has said that it will reconvene the forum later this year to review progress.

Commission Vice-President Günter Verheugen said: “Since CSR is about voluntary business behaviour, we can only encourage it if we work with business. Europe needs a public climate in which entrepreneurs are appreciated not just for making good profits but also for making a fair contribution to addressing societal challenges.”

However, the International Federation for Human Rights (FIDH) and Amnesty International joined other NGOs in attacking the statement on the grounds that it did not make reference to more regulation. The campaigns said that demands made by NGOs and trade unions during the multi-stakeholder forum had been discounted leaving a business-only approach.

BP, DuPont top climate change ranking

A greater number of global companies are addressing greenhouse gas emissions, according to a new report produced by Ceres on the climate change performance of the top 100 companies. BP and DuPont lead the pack with companies such as ExxonMobil and Newmont named as laggards.

The report, which profiles 76 US and 24 non-US companies, uses a 'climate governance checklist' to evaluate corporate performance in five areas: board oversight, management performance, public disclosure, greenhouse gas emission accounting and strategic planning.

According to Ceres, the report gives most credit to companies with a sustained commitment to controlling emissions, transparency and action. On a 100 point scale, BP scored 90 points, with ExxonMobil on 35. DuPont is the highest scoring US firm, and has reduced its greenhouse gas emissions by 72 percent in the last 15 years.

Executives to plead guilty in Samsung price-fixing case

Three former executives of Samsung have agreed plead guilty to a price-fixing conspiracy involving Samsung, Infineon Technologies, Elpida and Hynix Semiconductor.

The move comes after an extended investigation into the market for dynamic random access memory chips (DRAM) which are used in personal computers and associated products. The executives will serve prison terms of around 8 months and will pay a $250,000 fine. In total, all 4 companies and 12 individuals have been charged.

The Justice Department said that six US companies had been harmed by the price fixing, Dell, Compaq, Hewlett-Packard, Apple, IBM and Gateway.

Former Yukos executives to complain to human rights court

Lawyers for Mikhail Khodorkovsky and Platon Lebedev have said that they are to take an appeal against the former Yukos executives to the European Court of Human Rights complaining of violations of due process in their trial.

The two men, both serving eight years in jail for tax evasion and fraud, were widely seen as being the political victims of a Kremlin that would not allow the crossing of the line between business and politics.

Khodorkovsky has won one small legal battle so far - Russia's Supreme Court recently upheld a complaint that the penal colony in Siberia where he is serving his time had wrongly denied him meetings with his lawyers.

Philip Morris finally loses appeal over record damages to smoker's widow

Philip Morris USA will have to pay damages of over $82m to the widow of the smoker of its cigarettes following the refusal of the US Supreme Court to review the verdict in the case. The damages are the highest ever for a case involving an individual smoker.

Richard Boeken, a lifelong smoker, died of cancer at the age of 57. The damages awarded, although originally set at a punitive level of $3bn and subsequently reduced, beat the previous record of $16.7m.

In principle, the past conduct of the companies, which courts have upheld to amount to intentional deciet in relation to their customers, could represent a liability history that could destroy the industry. However, very few individual cases brought against tobacco companies have been successful.

Chile: Ripley withdraws adverts using torture images

Ripley, the Chilean department store has said that it will withdraw controversial advertisements showing men with hoods over their heads hanging from the ceiling from their legs after attacks by Amnesty International.

Amnesty had called the campaign, which was designed to remind people of the Abu Ghraib photos, 'an insult to the thousands of direct victims of human rights abuses'. Ripley's agency, McCann-Erickson, confirmed in a letter that the campaign would be replaced within days.

Many Chileans were tortured and murdered during the military regime took power in a violent coup in the 1970s.

Indonesia: President orders a probe into Freeport following protests

President Susilo Bambang Yudhoyono has ordered an investigation into Freeport Indonesia after protests calling for its mines in Papua New Guinea to be shut down resulted in four deaths.

The President said that he would look into the accusations that the company's operations have failed to benefit local communities, and that it is in dispute with traditional miners. He stated that the government would review the claims, and ensure that Freeport's community development funds are being operated effectively for the sake of the community. However, the government could not simply respond to the protests by shutting the company down.

The move comes as Freeport is already under investigation over charges of pollution.

Australia: Computer game banned for 'promoting crime'

Australia's review board for computer game classifications has published its reasons for withdrawing the MA15+ rating for the game 'Getting Up: Contents Under Pressure', suggesting that the game promoted illegal activity.

The withdrawal of the rating is an effective ban, since it means that the game cannot be sold, demonstrated or imported into Australia. The Board said it had taken the action because the game, where players are called upon to create graffiti in various scenarios, uses techniques that could develop an expertise in carrying out such actions in real life. It said that the depiction of graffit went beyond that of fantastical game play, and went so far as to effectively promote the crime of graffiti.

The creator of the game Marc Ecko, who was formerly a graffiti artist himself and now runs the fashion label 'Ecko Unlimited', criticised the move as arising from 'an outdated ratings system'. He said that the decision implied that playing a video game could in itself make somebody a criminal.

CSR FEATURES from the Internet

Speaking in Tongues - 16 Mar 2006 FROM TCS Daily

In Monty Python's classic "Hungarian Phrasebook" sketch, a Hungarian tourist walks into a British tobacconist's shop, and, consulting a faulty phrasebook, tells the clerk, "I will not buy this record, it is scratched." The clerk, looking confused, responds, "Uh, no, no, no. This is a tobacconist's," and says "cigarettes" as he holds up a pack. "Ya! See-ga-rets! Ya!" responds the Hungarian customer. "My hovercraft is full of eels."

What does this have to do with anything? Quite simply, the debate over corporate social responsibility (CSR) has come to resemble this exchange. The rhetorical battle has been joined, but the two sides just can't seem to agree on what they're fighting over. In fact, they keep talking past each other.

Read full story

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In search of the business case for responsible tax

Article by Mallen Baker

How companies engage in tax planning has become one of the emerging issues in corporate social responsibility. Certainly the heat around the debate has risen in recent months, with NGOs, regulators, the media, investors and businesses engaging in heated debate.

Thinktank / consultancy Sustainability has now added a substantial contribution to this debate with its new publication 'Taxing Issues: Responsible business and tax'. Here, they propose a number of arguments having carried out a review of the growing body of literature. First, that there is a robust business case for responsible practices in regard to tax. Second, that there are key principles around the tax agenda, namely accountability, transparency and consistency. Thirdly, that there are five levels in how companies report on their approach to tax, running from a scale of compliance at the low end, rising to 'integrated' at the high end.

First off, there is no doubt that this genuinely is an emerging issue, not just the next target for CSR geeks who get quickly bored. Press mentions of tax and corporate responsibility have risen steadily over the last five years, from just over 20 in 2000 to around 100 in 2005. Henderson Global Investors, KPMG and a range of others have made contributions to the initial thinking.

The interest stems from the realisation that, although many have now adopted the triple bottom line language of economic, social and environmental - actually it's the latter two that have received most of the attention. The financial contribution of companies to the communities where they are based is the most obvious expression of the company's economic impact on society.

Certainly, more companies have begun to make general statements within their CSR reports of the amount of tax they pay in different parts of the world, showing the growing interest in the area. But of course, it remains fraught with difficulty. At the launch of their document, Sustainability said that they had found considerable resistance from many companies to the issue being raised at all - even from many of those companies that are otherwise seen as being leaders in their field.

There is a spectrum of approaches to tax planning. On the one end of the scale, there is tax evasion, which is always illegal. Next, there is a state that Sustainability describes as 'sham', illegal but with the appearance of legality. Then one crosses the absolute boundary between illegal and legal (absolute in theory, sometimes only defined clearly through testing in the courts) and you get into avoidance. This is technically legal but arguably irresponsible. Then there is a blurred boundary between irresponsible and responsible - by no means well defined - and you end up at the other end of the scale - mitigation, where the company welcomes its contribution to society.

It's no mystery why this is seen as dodgy territory. No company operating in a difficult, competitive marketplace is going to happily stroll up to the taxman willingly handing over more money than they have to. There is certainly no business case for willingly giving money away. Or is there?

Sustainability draw the distinction between passive tax responsibility, where tax is seen solely as a cost to be minimised, and the company behaves correctly to the letter of the law, and what it calls 'active tax responsibility', where tax is acknowledged as a key element of the company's impact on society, and it operates true to the spirit of the law, avoiding loopholes etc.

The business case for responsible behaviour is presented in three parts - that for the business community as a whole, that for the company, and that for investors.

For the business community as a whole, Sustainability argues that irresponsible tax planning produces a generalised cost for business due to the complex and onerous tax legislation that ends up being produced in order to close loopholes in ever complex ways. This argument is undoubtedly correct, but only really comes into play if ALL businesses can be persuaded to change their ways. Individual business action will make no difference to this phenomenon.

On the company side, there are three factors. Reputational risk, arising from the possibility of negative press coverage of the company's tax planning. Regime risk, with the risk of litigation arising from challenges from tax authorities, as well as the possibility that the company will lose access to government contracts. Cashflow risk - since tax planning measures that may not hold in the long term reduces the ability of the company to plan around its future cashflow.

For investors, the cases are very much related. If the company suffers from the above, so do investors. In addition to this, some of the sharper ends of tax practice can give false information about tax liabilities and deferred tax charges that may conceal investor risk.

This is all very well, but really all the business case arguments for companies / investors really apply to why companies shouldn't live in the dangerous ground on the borders of legality. None of the points really address the case as to why companies should aim for the described state of 'active tax responsibility'. There is an excellent business case to say that companies should not run the risk of future controversy and prosecution as a result of potentially illegal practices - there is still no business case presented for paying more than required by the letter of the law.

Interestingly, you can see this in the report's proposed reporting stages. The minimum stage of 'compliance' is achieved by most businesses. The next level up of 'basic' has quite a few - these companies provide basic information about tax policies as part of their CSR reporting. The middle level of 'systematic' has only two given company examples, Anglo American and Statoil. After that, there are two further levels, 'extensive' and 'integrated' for which no existing corporate examples can be quoted. It seems to me that any system that purports to show a scale of excellence where nearly more than half the scale has more or less no examples of companies that currently practice it may be describing something that either has no real business drivers behind it, or simply isn't practical or achievable.

The basic points that this report makes are valid, and it represents an enormously helpful contribution to the emerging debate. There's no doubt that legality alone isn't enough, and there are reputational risks for those that believe it is. At the launch, the example of one global company was quoted where its operations in Ireland turn over something like a hundred thousand euros, and yet its Irish company nevertheless ends up declaring profits of two and a half billion. Even though legal, there are some obvious news headlines to be had from that arrangement. Whether the company might think that a price worth paying under the circumstances is another matter.

There is a great principle from all this that Sustainability has sought to propose, which is that tax should be paid in the geographical area where activity generated the wealth. Nobody has mentioned at this point the regimes where tax contributions are seen as propping up dodgy characters who abuse human rights - let's leave that to one side for the time being.

The way society's rules are currently framed is that individuals and corporations are able to order their affairs in such a way as to require the least tax paid. We know there is a line here - a company that has extensive operations in an area and pays no tax is clearly over it. But the business case for any individual company to go further than a cautious, conservative approach to ensuring legality has simply not been effectively made. It will take greater cooperation between states to produce a framework where those principles are respected. Since KPMG has just produced a report arguing that the UK is falling behind on its 'tax competitiveness', it's quite clear that this is not the way that states are likely to see the world.

'Taxing Issues - Responsible Business and Tax'. See Sustainability website.

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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