Business Respect - CSR Dispatches No 99 - 16 Jul 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 what PepsiCo and Microsoft have to tell us about the value of a corporate personality, and we hear from the FSC on Uruguay.

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/99.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

Just one away from the landmark 100th issue of this newsletter! The occasional messages of support have been a great boost in getting this far and getting these churned out time after time. Any words you may like to send to mark the occasion will be doubly appreciated!

A couple of issues ago, I reviewed the World Rainforest Movement's critical report on the certification of some timber companies in Uruguay to the Forest Stewardship Council standard. In short, the report argues that some of these companies should never have been granted certification, and that in any case FSC certification should not be granted to monoculture plantations which, in their view, are socially and environmentally damaging.

The Forest Stewardship Council have now sent me their formal response to the report. It's too long to include in full here, but I have put the document in the resource section of the website.

The companies that carried out the certification (SGS and Smartwood) have investigated the claims in the WRM report and have largely confirmed their original findings. "Reading the certification body’s reports it is apparent that some information in the WRM report was based on misunderstandings or in some cases presented out of context" , said Heiko Liedeker, Director of FSC International.

The FSC statement continues: "As part of the certification bodies’ assessment of forest management FSC requires extensive consultation with local stakeholders to ensure that the needs of local people are respected and met. Along with many other stakeholders in Uruguay WRM was contacted during these processes to raise their concerns. Smartwood’s public summary documents this well. The FSC accredited certification bodies will continue to involve social, environmental and economic stakeholders at every annual monitoring visit to each of their certified operations."

The SmartWood report itself complains that the WRM and indeed the author of the WRM report had refused meetings or interviews relating to the assessments, that some of the information in the WRM report (including 'before' and 'after' photographs) was not a fair representation of the actual facts on the ground.

To see the FSC statement (which includes the link to the Smartwood document) go to http://www.mallenbaker.net/csr/CSRfiles/Resources.html.

The vote on the website continues. You will recall it goes:

Companies that trade on their ethics such as the Body Shop should:
Stay independent at all costs to preserve their brand 127 (27%)

Accept offers from responsible buyers that may help the company to move forward 277 (59%)

Operate purely by the logic of the market, it's a brand not a religion 68 (14%)

Many thanks to the 472 people that have voted so far. We'll have a different vote next time, so only a few days left for this one.

Mallen Baker
mallen@mallenbaker.net

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CSR News 16 Jul 2006

NatWest bankers bailed in Enron fraud case

Three bankers that have been extradited from the UK to the US under a controversial anti-terrorism provision have been granted initial bail in the first round of their trial over fraud allegations.

The case has become a major focus of anger in the UK, as business leaders have complained about the ability of the US to have them extradited to face lengthy court cases, potentially without bail being granted, without having to make a prima facie case in a UK court. The complaint is particularly pertinent in the current case as the three men are accused of actions that they carried out in the UK affecting only their UK employer.

Gary Mulgrew, David Bermingham and Giles Darby have pleaded not guilty to all charges, and are seeking to win bail conditions that will allow them to return to their homes over the year or two that will be required to build the case. Their request is being opposed by the prosecution who want bail conditions to require that they stay in the US.

Chemtura to be sued by tyre companies for price fixing

Three tyre companies, including Bridgestone, are to sue Chemtura seeking damages from goods that were purchased during a period when the company was found to be involved in price fixing.

Chemtura pleaded guilty to charges of price fixing in a federal case for activity that took place between 1995 and 2001 that had the effect of keeping prices for materials used in motor car tyres artificially high. As a result, it was fined $50m.

The company was also hit by a fine in the European Union, where it was fined $91m.

Other companies involved in the conspiracy have already settled with the plaintiffs, but a Bridgestone spokesman said that it had been unable to reach an agreement with Chemtura.

China: Half of chemical plants pose major risks

According to China's State Environmental Protection Administration, around half of the country's chemical plants pose major risks of environmental incidents and pollution.

4 out of every 5 plants are reportedly located on waterways and / or in densely populated areas, increasing the potential impact on human life when accidents do occur.

The statement followed a major leak of chlorine gas from a plant in Yinchuan that put around 160 people, mostly children and elderly people, into hospital.

UK: Companies attacked for supporting Israel occupation

A new report by the UK charity War on Want has accused a number of companies of complicity in what it describes as Israel's war crimes against the Palestinians.

The document names companies such as Caterpillar, train operator Connex, and retailers Tesco, Sainsbury and Waitrose as being amongst those it holds as complicit.

Connex is criticised because it has taken part in constructing a light rail system that will link Israeli settlements in East Jerusalem to the other side of the city, which it sees as supporting illegal occupations. The retailers have been identified as selling wine and other goods that are produced within occupied territories.

Microsoft fined over $350m by European Commission

As expected, the European Commission has hit Microsoft with a fine for failing to comply with an antitrust order requiring it to share technical information about its Windows operating system with rivals.

The European Commission said that the company had failed over the previous two years to provide information that would make it easier for rivals to make their software work effectively within Windows.

The EC has also begun questioning Microsoft over features in its proposed new version of its operating system codenamed Vista, which is believed to incorporate internet search, security and document features. The company said that it has already made design changes in Vista that will make it easier for users to substitute other software for features in Windows, but that it is worried that Europe will wait until the last minute before making known what changes it may require when it is too late to easily comply.

PepsiCo gains credit for refusing trade secrets sale

PepsiCo has been praised for refusing to buy rival Coca-Cola's trade secrets that were stolen by three Coke employees and offered to it for sale.

Instead, the company contacted its rival and tipped them off about the offer, and then cooperated with the FBI who posed as interested PepsiCo employees wanting to buy the secrets.

Coca-Cola chief executive Neville Isdell wrote a memo to staff about the incident and thanked its main rival for its actions.

Australia: AWB faces $1bn US lawsuit

Wheat farmers in the US are bringing a $1bn lawsuit against wheat exporter AWB following claims that the company had used corruption to win business. The suit alleges that AWB used bribery and other corrupt practices to sell grain to Iraq, Yemen, Pakistan and Indonesia - sales that would otherwise have gone to US or Canadian farmers.

The move follows the investigation into AWB initiated by the claims that the company bribed officials in Saddam Hussein's Iraqi regime in order to gain oil-for-food programme orders.

The company has denied the charges, and said it would strenuously defend itself against any action brought.

EU criticises internet companies in China

The European Parliament has passed a resolution criticising the internet companies that have, in its view, cooperated with repressive regimes that seek to inhibit freedom of information.

Google, Yahoo, Microsoft, Cisco, Telecom Italian and France Telecom were all named in the resolution, which also welcomed a draft law in the US that would restrict some of these activities and called upon the European Commission to establish a voluntary code of conduct of its own.

The move is the latest development in an ongoing controversy sparked when some of the internet companies agreed to self-censorship on their Chinese search portals, and in the case of Yahoo where dissidents have been jailed as a result of postings made via their online system.

The freedom of information NGO Reporters Without Borders said: "This resolution shows that Europe is becoming aware of the extraordinary importance of online free expression and the need to regulate the activities of companies working in this area".

Revised Equator Principles launched

A revised version of the Equator Principles has been launched to cover social and environmental risks for financial institutions in project financing.

The changes have been prompted by the recent revision of the International Finance Corporation's performance standards, upon which the Principles are based, as well as lessons from the years of practical experience of the companies that have signed up.

Key changes include:
* A lowering of the threshold for project costs that are brought into the scope of the Principles - down from $50m to $10m.
* The inclusion of projects that are expansions of existing projects where the changes will entail additional environmental or social impacts
* A lighter touch for countries where high social and environmental standards are already enforced
* A bolstering of the social and environmental standards applied, including more rigorous public consultation standards

33 of the 40 signatory companies have signed up to the revised Principles, with others expected to follow suit.

CSR FEATURES from the Internet

iPod's children: China's youth makes them, America buys them - 16 Jul 2006 FROM San Francisco Chronicle

04:00 PDT Shenzhen, China -- Lunchtime arrives and hundreds of young, weary workers in company shirts flood through factory gates and out into the sweltering southern air.

Most are migrants in their own country. Born poor in rural China, they have come to this manufacturing mecca to make the latest gadgets for the world -- the iPods, cell phones and laptops that, of course, they can't afford.

Read full story

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Corporate personality - does it help companies to play fair?

Article by Mallen Baker

Microsoft has had a tough couple of weeks in Europe, being fined by the European Commission for not playing fair with its competitors. At the same time, PepsiCo has been bathing in the warm glow of approval after it spurned the offer to benefit from industrial espionage at Coca-Cola. So what does it really mean, to operate within a culture of fair competition?

Microsoft would contend that this is a less easy equation that it would appear at first glance. It has complained that the expectations of the European Commission as to what information it should share with its rivals in order to give them fair access to develop software for the Windows operating system have been unclear from the start. If only it had been clearer, the company argues, it would have been able to comply sooner.

Its rivals believe this is nonsense, of course. They insist that this is a company intent on extracting maximum advantage from its near-monopoly for as long as it can possibly get away with. It has responded to the previous European Commission ruling by taking actions that it can describe as meeting the requirements without actually fulfilling their intent.

Not that operating within the spirit of fair play necessarily means being a soft touch. PepsiCo competes hard with Coca-Cola. They are bitter rivals for market share, toughened in recent years by surviving all sorts of accusations and consumer response to fears of the role of soft drinks in contributing to obesity.

You would think that in such a cut-throat world, benefiting from stolen trade secrets would be par for the course. When Joya Williams, an administrative assistant at Coca-Cola headquarters joined with two others in picking up trade secrets and attempting to sell them on for $1.5m, they were striking at the heart of the Coca-Cola empire.

The secrecy of its formula is a point of paramount importance for Coke. The company has no patent on its core formula since it has never wanted to have to publish details of what it consists of. This makes it vulnerable to intellectual property theft in a serious way.

Of course, what was on sale here was not the core formula - it was details around a new development. Nevertheless, it should have been attractive to PepsiCo to learn the details to enable them to produce a spoiler product. Instead, they immediately notified Coca-Cola of the offer they had received, and co-operated with the FBI in setting up a sting operation to catch out the perpetrators.

PepsiCo spokesman Dave DeCecco said: "Competition can sometimes be fierce, but also must be fair and legal."

To recognise that there was a strong business case for PepsiCo to behave the way it did is not to diminish it. If the company had accepted information under such circumstances, it would be as liable in law as if it had committed the theft itself. Plenty of companies have done such things, of course, and have paid the fine if they got caught out and probably saw this as the natural consequence of doing business. Even so, the value of the information being sold was probably less to the company than the value of the good publicity that has followed its actions.

So is there something serious here about corporate personality - the way that companies will naturally tend to respond to circumstances, even against their own short term interest? Or is it simply about compliance, as both of these case studies might be taken to suggest?

Really, the two examples of Microsoft and PepsiCo focus on quality of leadership. It is Microsoft's senior executives that negotiated terms with the European Commission, and will then have instructed staff on how the final resolution was to be interpreted. Whether the company is justly accused of doing as little as it can get away with can only really be answered by getting an insight into the intent of those individuals. Likewise with PepsiCo, the approach from the intellectual property thieves would have been communicated immediately to the very top, who clearly then quickly and easily made the decision that they did. Different individuals with different values might have chosen alternative routes.

So both these examples are about personal leadership, not corporate personality. Does that mean that there is no such thing as corporate personality?

If there is, then it surely exists in those companies that are so values driven that decision-making on such matters is driven throughout the layers of the business.

There are many companies that have a statement of values. They are pinned to the Chairman or President's wall. The senior management can recite them on demand. They are published in the company's CSR report. But for every one company where these values actually affect the way that decisions are made, there will be ten where they get no further than the senior executive suite.

We're talking about companies like 3M, that have sustainability and innovation embedded into the organisation, and where any new CEO has to start by learning the unique corporate culture rather than expecting to be able to come in with grand sweeping visions of change. We're talking about companies like Southwest Airlines, where employees at every level know all about what corporate policies have been established in key, sometimes controversial, areas and can act as ambassadors for these to customers. We're talking about a small but distinguished group of other companies where employees feel empowered to 'do the right thing' when faced with a dilemma because they know this is the corporate culture.

The fact that these are successful companies that have helped to reshape their marketplace in highly competitive environments goes to show that creating such a corporate personality is not naivety in the face of hardnosed business cultures. Indeed, the seminal Collins and Porras research 'Built to Last' that identified the key factors that had made certain companies enduringly great over a hundred year or more timescale, focused on this factor above all else.

Unfortunately, this is a difficult thing to measure. The Dow Jones Group Sustainability Index or Business in the Community's Corporate Responsibility Index would struggle to find a way to reliably identify companies that had created an effective corporate personality that supported their responsibility and their business success. It's the kind of thing that will probably remain an 'I know it when I see it' quality.

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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