Business Respect - CSR Dispatches No 93 - 23 Apr 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 look at draft Principles of how business should respond to demands that they make their money responsibly.

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/93.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

We know that there are increasing expectations on companies over their marketplace behaviour. How they develop products, how they market, how they source materials, all of these have been flashpoints for campaigners and for media criticism in recent years. What is less well understood is where the expectations begin and end. It is one thing to expect alcohol companies, for instance, to promote responsible drinking. But how liable can you actually hold individual companies for the choices that individuals may freely make about how to consume their products?

My own work within Business in the Community over the last year has been focused on how we create a business response to these challenges. The article for this issue is about the outcome - the draft Marketplace Principles. Have a look at it, and if it whets your appetite take a look at the full Principles document. I will be very happy to carry any comments on the draft, critical or otherwise, in the next issue and will feed them into the document formal consultation process. Over to you.

Of course, it can sometimes be difficult to be the object of critcism. Certainly, I didn't suppose that the Center for Sustainable Innovation would be overpleased with the review of the Social Footprint method, as covered last issue. As it turned out, this was something of an understatement. Mark W. McElroy came back with the following:

"The recent review by Mr. Mallen Baker of our Social Footprint method was so full of false and uninformed statements, I hardly know where to begin.

"A central theme in Mr. Baker's remarks seemed to be a devotion to certainty. Because actual conditions in society can never be known with certainty, he argued, we should all just declare defeat and forget about measuring corporate social bottom lines at all.

"We, of course, disagree. In fact, we stand on the principle of fallibilism. Certainty of knowledge is not only a fiction, there is no need for it in order to make progress. If everyone held to Mr. Baker's standards, nothing would ever get done.

"Another of Mr. Baker's specious criticisms was that the Social Footprint fails to take qualitative factors into account. What, if not a focus on qualitative factors, is a method that profiles the impacts of organizations on the well-being of society?

"In sum, Mr. Baker's critique of our method committed the worst kind of superficial journalism. I hope he and others who genuinely wish to understand the method, and not just savage it, will give it the more careful consideration it deserves."

Ouch. Mark actually gave more detailed comments, which I have responded to and are on the website at http://www.mallenbaker.net/csr/footprint.html. But having reviewed all of these, and trying to disentangle the argument of ideas from the namecalling, I stand by the original review. Ultimately, if you make the claims that 'true Triple Bottom Line measures can now be taken and reported for the very first time' you should expect the work to be judged on that claim, and as currently presented, with the examples used to illustrate the method, it does not deliver.

But the proof will be in the action. Ultimately, if the Social Footprint proves to be an effective tool for businesses to use, it will be used and I will have to eat my words. A good method can survive bad criticism.

Finally, I came across the new 'Swicki' community-based search engine recently. A 'swicki' search allows the users to promote or suggest removal of items that are returned in a search in a way that should, over time, mean that you get fewer / no irrelevant results, and the best results come to the top. It also enables you to draw first from websites known to be good quality sources for the information you're looking for.

I have created a Swicki for corporate social responsibility searches which you may want to try out. It is linked from the front page of the website, or you can go to it directly at http://www.mallenbaker.net/csr/swicki.html. Webmasters - if you want to include this search facility on your own sites let me know and I'll mail you the code (or just pull it from the search page on the mallenbaker.net site). If it is effective, this could prove to be a facility that services the whole community. Is it better than Google? They provide a 'compare results with Google' button just so you can check. Now that's confidence for you!

Mallen Baker
mallen@mallenbaker.net

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CSR News 23 Apr 2006

Japan: Kubota offers asbestos compensation to neighbours

Machinery manufacturer Kubota has said it will pay 46m yen to people who lost relatives to asbestos exposure, making it the first company to extend such support outside of its own workforce.

The firm will provide the payments to people that lived within a kilometre radius of their factory, which has now been closed, who are suffering from any of the diseases known to be linked to asbestos.

The company has stopped short of admitting that its use of asbestos directly caused the diseases suffered by these people, but has said that it is making the payments because of the possibility of a link and the company is responding to its 'moral responsibility'.

India: Prime Minister responds to Bhopal hunger strike

Manmohan Singh, the Indian Prime Minister, has brought a week-long hunger strike by survivors of the 1984 Bhopal tragedy to an end by meeting a number of their demands - but stopping short of agreeing to a prosecution of Union Carbide.

The government has now promised that the disused site will be properly cleaned up, with fresh drinking water made available to local people. A memorial to those that died will also be put into place.

The incident was the greatest industrial accident in history, and killed more than 3500 people when poisonous gas leaked from a pesticide plant. Many more have since died from diseases associated with the incident.

The campaign to clean up the site has been fought over 20 years. Recently a local court had ordered the site to be cleaned up, but the move was abandoned when the workers carrying out the order were overcome by fumes. Recently a group of 40 drew attention to the situation by walking from Bhopal to New Delhi, and then undertaking a hunger strike - both actions that invoke the memory of Mahatma Gandhi's nonviolent resistance campaign.

Union Carbide is now owned by Dow Chemical, which has consistently said that liability for the tragedy had been played out before the company merged.

Chad: Deadlines extended as World Bank and government seek solution

The government of Chad has extended its deadline for the direct payment of oil revenues before it carries out its threat to close down production. It says it has done this because it is now increasing in confidence that a deal can be done with the World Bank before the end of the month.

The government had agreed with the Bank and the consortium of oil companies that are pumping the oil, led by ExxonMobil, that revenues from oil would be handled transparently and would explicitly serve the needs of the poor and future generations. The government unilaterally cancelled this agreement when it decided that it needed to divert funds into its military in the face of growing internal pressure. Since that action, the World Bank has frozen funds and the situation has been at stalemate.

The government of Chad has said, however, that there must be an agreement by the new deadline of April 31st or else action will follow.

In a separate development, the UK's ethical bank the Co-operative Bank has said that it will not deal with the World Bank's private sector arm, the International Finance Corporation (IFC). The move, which has been welcomed by a number of broadly anti-corporate NGOs, was attributed to the IFC's continuing commitment to fossil fuel extraction.

Enron: Jeffrey Skilling closes testimony

Jeffrey Skilling, the former chief executive of the company that has since become the byword for corporate corruption, Enron, has completed his eight day long testimony in court. The way is now clear for Kenneth Lay to take the stand next week.

Skilling argued the case that Enron had been a healthy company which only collapsed due to panicked selling by investors, and that accounting fraud that had taken place was actually carried out by second tier employees, such as the former chief financial officer.

Although Skilling was generally credited with having made a good job of his testimony, the prosecution has been praised for having avoided technical detail that can confuse juries in complex fraud trials and keeping a focus on effective arguments about the role of the accused men. If found guilty, both face lengthy prison terms.

ING Group rules out participation in controversial Uruguay pulp mills

ING Group has said that it will not participate in the controversial papermill project in Uruguay which has seen its World Bank funding frozen following unfavourable environmental impact assessments.

The project, led by Finland's Metsa-Botnia and Spain's Ence is opposed by Argentina, which it believes will cause significant pollution. Uruguay insists that all appropriate measures have been taken.

ING Group, which is a signatory of the Equator Principles, had been expected to provide significant finance for Botnia's role in the project. The World Bank funding has postponed any decision until failings in previous environmental and social assessments can be remedied.

The project had already suffered following Botnia's refusal to halt construction of the mills pending agreement between Uruguay and Argentina, on which the companies stock price was hit.

Nigeria: Oil tax audit reveals huge gap

An audit of payments made by oil companies in Nigeria has uncovered huge discrepancies between the amount that the firms say they paid and what the government says it actually received.

The different figures are $250m apart, and have been uncovered by the Nigerian Extractive Industries Transparency Initiative.

The audit noted that standards of accounting were poor overall, and that huge gaps exist - the report declined to speculate as to where the money has gone.

The companies involved include Shell, ExxonMobil and Chevron. Shell in particular has suffered violent attacks and kidnappings against its installations who believe that oil wealth being generated in the region is not sufficiently benefitting local communities.

Wal-Mart pledges not to open bank branches

Wal-Mart has promised the first public hearing held by the Federal Deposit Insurance Corporation that it will never open bank branches, following controversy over the firms suspected intentions.

The testimony came about following Wal-Mart's application to open a bank in order to process credit card transactions without the cost of a third party - which the company declared to be the only intention behind its move.

Some banks fear that the company eventually intends to move into consumer banking services, something which they believe could pose a serious threat to their businesses.

The focus of the hearing turned into a long assault on the company's integrity, with various opponents stating that the company's word could not be trusted.

Merck loses latest Vioxx lawsuit: Fined $9m

Merck has been fined $9m after a jury in New Jersey, US found that its Vioxx painkiller had contributed to his heart attack.

The plaintiffs had argued that Merck was liable for the heart attack, since it had failed to warn about the possible dangers of the drug. Merck has said that it will appeal the award.

The defeat for Merck follows a previous success where it was found in the case of Mr. Humeston and Mr. Irvin not to have mislead customers in its marketing. In this case, Mr. McDarby's lawyers persuaded the jury that Merck had knowingly kept back information. The company is potentially facing 10,000 future lawsuits from similar Vioxx users.

Australia: Amcor faces class action over price fixing

Packaging firm Amcor is facing one of the biggest Australian class actions over allegations of anti-competitive activity, including price fixing.

The $300m class action arises from the belief that Amcor participated in a cartel with Visy Packaging. Amcor had previously been granted immunity from prosecution by the Australian Competition and Consumer Commission after provding information.

Purchasers of cardboard boxes had been held to have paid between 8 and 23 percent too much. The problem principally affected people in the food and drink industry.

Body Shop image suffers from takeover

A BrandIndex survey has suggested that satisfaction ratings in ethical cosmetics company the Body Shop has slumped since the company was taken over by L'Oreal.

One of the issues has been the potential compromise of the Body Shop's commitment against animal testing. L'Oreal is felt to have a less than solid commitment in this area by activists due to the company's admission that some of the ingredients in its products have been tested on animals.

Controversy has also come from anti-Nestle campaigners, who have pointed out that L'Oreal is part-owned by the company.

According to the survey, satisfaction levels in the Body Shop have gone down from 25 points to 14.

CSR FEATURES from the Internet

Strong relationships key to success - 20 Apr 2006 FROM China Daily

In a time of globalized competition, globalized markets, and globalized politics, competition has become more and more intense.

But just as bottom lines are being squeezed, businesses are increasingly being asked to assume a greater role in the enormous social and political challenges of our time - fighting poverty, protecting the environment, reducing ignorance, treating disease. Many are trapped believing that they cannot serve both the intense demands of profit and the complex demands of social betterment.

Read full story

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In search of responsible market leadership

Article by Mallen Baker

Corporate social responsibility remains a disputed term, but increasingly it is now defined by how businesses make money, not just by how they give some of it away. What we have lacked to date has been any kind of framework to map out what the objectives of responsibility in the marketplace should be.

Over a year ago, Business in the Community brought together a group of senior business leaders - the Marketplace Taskforce - to address the issue. The group has now produced a draft set of marketplace principles which are out for consultation.

The issues are defined into four overall themes, which are effectively about different kinds of relationships that the business has in this sphere.

The first theme relates to the rules of the marketplace. There is no such thing as a free market. Everything is regulated to some extent, and the impact of market activity is shaped or mis-shaped as a result. Of course, businesses are therefore key stakeholders of the lawmakers, and consequently lobby for how those rules should be framed. This can range from negative, purely short-term self interest, or indeed for seeking to promote progressive solutions that will help the market to deliver the best social outcomes. In addition, there are questions about how companies behave in environments where some fairly basic rules are either absent or not enforced, and there is something as well about corporate culture. A monopolist business may operate within the letter of the law, but is there something about how companies operate within the spirit of fair competition as well?

The second theme is about the relationship with the customer. Within this area, you are talking about basic respect for the customer, both in terms of providing honest and accurate information, marketing with integrity and honouring your promises. It also includes issues around customers that may be unusually vulnerable in some way, either to interruption in the supply of the product, or to exposure to the product. Examples might include solvent abusers for aerosol manufacturers, or people living in poverty for retailers of essential utilities such as energy or water.

The third theme focuses on the relationship with the supplier, both in terms of risk down the supply chain relating to labour or human rights but also in terms of fair treatment of suppliers. Obviously, this is one area where there is a great many existing initiatives and activities. However, there remains by common consent a great deal of progress still to be made in finding solutions to the problems of audit-led processes. And the second aspect remains the most elusive. In recent months in the UK, several retailers generally seen to be leaders in supply chain risk management have unilaterally imposed unfavourable terms on their suppliers - one extending their terms of payment to 90 days, the other shaving off 10 percent from the prices they will pay suppliers in future.

The final theme focuses on impacts on third parties of products or services. When you drive a car, it produces emissions which contribute to an overall impact on the health of people that never took part in your decision to buy that car or indeed to drive it. That is about the inherent impact of the product - used as described on the tin. There is also, of course, the possibility of mis-use or abuse of the product. Addiction or anti-social use is an example of this, or indeed easy susceptibility to theft (the mobile phone companies were heavily criticised for being slow to build in security to their phones, for instance).

The Marketplace Principles make the starting point assertion that businesses do better when they proactively manage these issues. It can be the difference between being a confident market leader, or being perpetually on the back foot, surprised by every criticism and controversy.

Consequently, the draft Principles lay out 8 very simple aims covering the issues. In the simplest possible terms, these are:

(i) Work with the rule makers
(ii) Have consistent standards
(iii) Respect your customers
(iv) Support vulnerable customers
(v) Actively manage responsibility in your supply chain
(vi) Treat suppliers as partners
(vii) Manage the impact of product use
(viii) Mitigate the effects of product misuse

In addition to these, along with the commentary that expands each of them, the Principles contains a number of management behaviours that are proposed as improving the likelihood of success in these areas. The CSR movement has been guilty in the past of proposing activities without clarity about what constitutes skill in execution. In this area, however, there must be just as many ways to get this wrong as there are to get it right, and the reputational risk is high since this is where many of the really controversial issues live.

So the eight management behaviour seek to frame what should improve success in this area. In simplest form, these behaviours are:

(i) Be consistent
(ii) Anticipate trends
(iii) Skill in execution
(iv) Core to business strategy
(v) Parts of the culture
(vi) Reward the right behaviour
(vii) Mainstream not niche
(viii) Share within the business

Some are easier than others to achieve. The 'be consistent' point draws from some of the learnings of the Collins / Porras 'Built to Last' research, which identified that enduringly great companies were built on a consistent base of values that remained within the company regardless of the comings and goings of the person at the top. For every genuinely values-driven company you can find, you'll find ten others that have a statement on the chairman's wall, and yet those values make no difference to how people make decisions within the business. Can you do responsible things in the absence of a values-culture? Of course you can - but you can't guarantee that the corporate entity will do responsible things next year, or the year after, or in its operations in Vietnam - because it is purely down to the integrity of individuals not the group as a whole. But to create a genuinely values-driven culture is not a small or easy task.

The consultation continues until July this year, both with invitations for responses to the draft Principles document, and a series of UK-based senior executive breakfasts. There is also a detailed series of case studying being undertaken to test some of the assumptions against real life best practice. The final official Marketplace Principles will be published and launched in September.

Interested to feed back into the consultation, or to find out more about the process? You can download a copy of the Principles from http://www.bitc.org.uk/marketplace or from the resources section of the mallenbaker.net website.

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In the news from the latest issue

US: GlaxoSmithKline could face $6bn risk over diabetes drug Avandia

Bangladesh: 21 people killed in factory fire

Uganda: Tullow Oil controversially get licence to flare gas

UK: Alcohol health labelling may become compulsory

US: Key companies quit climate change coalition

Australia: Google refuses government request to censor videos

Japan: Court finds tobacco company not liable for illnesses

UK mining groups failing to reduce deaths

Zambia: Chinese companies accused of creating 'slave labour' conditions

UK: GlaxoSmithKline targets low cost vaccine for malaria

South Africa: Apartheid case against companies divides opinion

US: Pension group TIAA-Cref disinvests from Sudan

US: UTStarcom pays $3m for China bribery

UK: Ryanair attacked for "puerile and childish" payment policy

... more news stories

To make any comments / suggestions re. this site, please contact mallen@mallenbaker.net
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