Lifeworth 2001 Review of Corporate Responsibility
Home | Introduction | January - March | April - June | July - September | October - December | Footnotes
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October - December
Antiglobalisation: now it's your business
Views on Corporate Citizenship or Corporate Social Responsibility (CSR)
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Post 9/11
The terrorist attacks in the United States on September 11th, and their aftermath, had a significant impact on many political, economic and social aspects of life during the last quarter of 2001. Not surprisingly, activities within the area we call 'corporate citizenship' or corporate responsibility were also affected, with the full implications of these terrible events only beginning to be understood as the New Year dawned. During the immediate aftermath of the attacks, concern about the US economy deepened and a range of major companies announced they were laying off workers. Boeing, the world's largest aviation company cut 30,000 jobs, with their CEO, Phil Condit, saying that September 11 and the aftermath was "a horrible situation… the job cuts go right hand in hand with that". However, the BBC noted that Boeing would be bouyed by military and space technology spending, while in October the company unveiled a $1.6 billion deal to supply China with 30 jetliners. 1 Thus November's Reputation Impact reported the "scepticism that corporations are using the impact of September 11 as an excuse" for strategic corporate restructuring. 2 South Africa's Business Week said "it should be remembered that the mark of true business leadership is to succeed in bad times as well as good, and lumping all the blame on Bin Laden… is simply ridiculous." 3 Some corporations contributed to this criticism of mass redundancies, with General Motors launching a 'Keep America Rolling' campaign and noting that "the best way we can respond to these acts of terrorism on our soil is to… keep our employees working." Despite the economic downturn, many companies gave generously to disaster appeals. Millions of dollars of support for victims and their families was pledged by corporations across America, with retail outlets also helping customers to make donations. ShopRite stores collected more than $500,000 from customers who chose to have a $2 or $5 donation tacked onto their grocery bills, the money being split between the Red Cross and the Salvation Army. Businesses in Europe also responded, some donating several million dollars, among them DaimlerChrysler ($10million) and Deutsche Bank ($4m). In-kind donations were also made, with Novartis offering its entire supply of Apligraf, a skin replacement used to treat burn victims. US Business Week applauded the response of some business leaders, saying that "the past few weeks have shown us a corporate leader means much more than just managing the bottom line." Pharmaceutical companies were not among those receiving this glowing praise. As the anthrax scare swept America, so Bayer, the maker of an antibiotic that fights the disease, had its ethics - and its patriotism - questionned. The Canadian government threatened to ignore Bayer's patent on Cipro and buy 1 million tablets of a generic version from another company. The US Secretary of Health and Human Services, Tommy Thompson took similar action stating that Bayer "are going to either meet our price - or else we're going to go to Congress and ask for some support to go in and do some other business." Not surprisingly Bayer caved in and agreed to sell the US and Canada cheaper Cipro at the knockdown price of 95 cents a pill - rather than the original $4.50. Bayer, who had initially threatened to sue the Canadian government for breach of patent, was one of the 39 corporations that, earlier in the year, took South Africa to court when the country said it would use emergency legislation to purchase cheaper generic drugs to treat people with AIDS (Go to: 'patients pending'). Clearly, all death is sad, and avoidable death is wrong. In 2001, 4 people died of anthrax in the US, while an estimated 2.4 million people died of HIV-related causes in Africa. 4 Mallen Baker argued in Business Respect 5 that although "the pharmaceutical companies have the right to profit by their research and development into solutions which genuinely enhance human well being… as things currently stand, patents are licensed monopoly." He insisted that "there is now a fundamental challenge to the industry to establish the framework of fair protection for innovation that is widely seen to be free from abuse." The challenge is great as prices usually drop about 25 percent once competition from generics has been introduced, so that companies take a short-term hit on their bottom line. However, with the whole basis of their business continuing to be questioned, will the drug companies club together to take the necessary action to generate legitimate practices in this area? Not yet, it seems. In the run up to the World Trade Organisation (WTO) meeting in Qatar a group of less-industrialised countries asked to the organisation to re-interpret rules in order to give governments the right to access affordable medicines. Their initiative was blocked by Switzerland, Japan and, undaunted by recent events, Canada and the US. So instead, the WTO passed an agreement ensuring that less-industrialised countries must introduce intellectual property laws, which uphold multinational's patents (97% of all patents are held by multinationals). The WTO may have put people and corporations on a collision course. "The WTO may have put people and corporations on a collision course"
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Wider implications
The President of the International Chamber of Commerce, Richard McCormick, suggested that "the collapse of the World Trade Center needn't foreshadow darker days" and that "business people must recognize the social importance of what we do." This illustrates how, as time passed, people began to reflect on what the wider implications of September 11th might be. Not so much how did it happen, but why and what could be done to prevent further atrocities from happening in the future. The mainstream media tended to focus on the 'war on terrorism' and the recession. Most coverage of business and economics was limited to discussing issues such as whether the 'war on terrorism' justified fast-tracking trade negotiations, or whether it had become a 'patriotic duty' to go and shop. However, some industry leaders were heard suggested that one lesson from September 11th should be a focus on the long-term economic and environmental health of the whole world. 6 In conferences such as those of Business for Social for Responsibility (BSR) in Seattle, and Social Accountability International (SAI) in Amsterdam, similar reflection was taking place. During the plenary at SAI's conference the director of the International Business Leaders Forum (IBLF), Robert Davies, said that international business has "a critically important role to play" in managing the effects of conflict and terrorism and that "business could contribute to tackling the conditions of alienation and destitution in which fanaticism flourishes." He called on business people to think more critically about what economic and financial globalisation is, or is not, delivering for the world's people and argued that the 'trickle-down' effect is not working. Some hoped that the latest round of WTO negotiations, 'The Doha Development Round', would rise to the challenge of managing economic and financial globalisation in ways more supportive sustainable development. However, the talks attracted renewed criticism, with Barry Coates, Director of the World Development Movement arguing that rich countries had "exploited the vulnerability of poor countries in order to force their agenda on them." This was reflected by Richard Bernal one of Jamaica's official delegates, who during the conference said "we are made to feel that we are holding up the rescue of the global economy if we don't agree to a new trade round here." Coates criticised the neo-liberal agenda of the WTO, suggesting that "little has changed" for the world's poorest countries, as "their exports are blocked, their businesses are wiped out by foreign multinationals and their farmers are driven off their land by subsidised exports from the rich countries." The location of the meeting meant that there were not protests like in Seattle two years previously. Although not well covered by the mainstream media, there were reports of thousands of people protesting in hundreds of different cities, including Bangkok, Thailand, New Delhi, Seoul, Ljubliana, and Tehran, all to coincide with the WTO conference. 7 In the first Global Civil Society Yearbook, published by the London School of Economics 8 the editors asserted that "global capitalism must either learn to seriously engage with these protests and join in the attempt to civilise globalisation, or prepare for more massive and more violent protests ahead."
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Antiglobalisation: now it's your business
Reference to such protests as a reason for corporate citizenship is not new - and continues In November, The San Francisco Chronicle 9 mentioned protests as a reason for renewed interest in corporate social responsibility, while the first issue of Ethical Corporation 10 magazine featured pictures of riots at the G8 summit in Genoa on its cover and asked corporate readers whether they would like to see such activities outside their own headquarters (the vast majority of demonstrators were, of course, peaceful). Many commentators suggested that this 'anti-capitalist' backlash meant companies should take individual action to demonstrate their responsibility and protect their reputations. This view has been promoted by consultancies who have sought to help companies with stakeholder engagement and social reporting initiatives. However, corporate responsibility initiatives from individual corporations may not provide a panacea. It can certainly be argued that the challenges are more systemic.
For example, two key issues for activists have been 'third world' debt and international currency speculation. The austerity policies imposed on indebted countries to ensure they pay interests on their debts has led to 19,000 children dying from preventable causes everyday, according to Christian Aid. 11 This has created a backlash against the World Bank and International Monetary Fund (IMF) who were responsible for imposing these policies, and the rich country governments who supported and benefited from the process. The debt crisis has also weakened economic, social and political stability in indebted countries and undermined the reputation of global capitalism generally. It is impossible to see how an individual corporation's responsibility policy or social report would help tackle this issue, or indeed the related problem of international currency speculation. With $1.5 trillion switching hands (or rather computer screens) every single day 12 the French activist group ATTAC (Association for the Taxation of Financial Transactions for the Aid of Citizens) along with War on Want in the UK and other NGO, Trade Union and campaigning groups have called for a tax on this speculation in order to stabilise the world economy, to lessen the pressure on governments to seek favour from the financial markets, and to generate a source of revenue for poverty alleviation and sustainable development. This so-called Tobin tax (named after the Nobel-prize winning economist James Tobin, who first proposed such a tax in the 1970's) has been estimated at being worth over $250 billion a year. Its proponents argue that the G7, UN or OECD should now take the lead in its establishment in the nine developed countries where 84% of foreign exchange transactions take place.
The idea that collective, not individual, action is required by corporations to help shape the regulatory structure in ways that support corporate responsibility has begun to be discussed in some circles. The Foreign Policy Centre published a pamphlet by Simon Zadek which called on governments, business and civil society to work together to "shift the terms of competition to ensure that social and environmental objectives are addressed through the market." One of his key proposals is for changes in the corporate tax regime to favour responsible companies. He also calls for more effort on consumer education and the establishment of credible social labelling schemes. In October, the Belgian Chamber of Representatives took its own initiative in this area, announcing a social labelling scheme for products from less-industrialised countries. An independent body will test companies applying for the label on their social rights performance. A similar scheme is being considered in France, and some are arguing that the social label will eventually grow to become EU-wide, although the experience with EU's Eco-Label for environmentally preferable products is not that encouraging.
Although most of Zadek's recommendations are directed at government, he makes the case for companies to embrace a new generation of corporate citizenship thinking. He argues that corporate responsibility "will remain distrusted and inadequate" unless government creates the conditions under which it can be more effective for both business and society. Zadek's main focus is on incentivising and rewarding corporate responsibility. Whether this would be enough to tackle either the trademark trouble faced by transnational corporations, or the systemic problems posed by economic globalisation is uncertain.
The experience of Nike illustrates the paradox of power at the heart of corporate responsibility initiatives. In September they published their first corporate responsibility report. 13 CEO Phil Knight said that readers would not only "see a few accomplishments" but also "more than a few challenges." The report illustrates how they have pursued one of the more progressive policies of a branded clothing company in recent years, yet despite this investment of time and money they remain a target for brand-bashing activists. Although many activists focus on specific concerns such as pay and conditions in supplier factories, companies like Nike are seen as celebrity symbols of the global economy. There is concern about the power of corporations such as Nike in shaping people's lives, from workers to consumers. Therefore the more it tackles the specific issues its critics raise, or supports community initiatives, the more its problematic position of power is both consolidated and contested. Consequently resistance to Nike might not be assuaged and their social responsibility work prove of limited financial value if they are undercut by competitors without such a symbolic profile.
"The lack of global regulatory mechanisms may leave responsible corporations vulnerable to being undercut by more ruthless competitors"Therefore, although there are interesting developments within the financial community, discussed below, the concern remains that the lack of global regulatory mechanisms will leave responsible corporations vulnerable to being undercut by more ruthless competitors. Recent developments in the case of Talisman are instructive. The Canadian Oil company decided to sell its Sudanese assets after U.S. legislators threatened sanctions that could cost the company its U.S. stock exchange listing; the concern being how the Sudanese government was using the oil revenues and installations to wage a religious civil war. Selling its assets was not what campaign groups like Christian Aid were seeking from Talisman, but for it to freeze their operations and seek to work with other oil companies to ensure a common approach more
. It was not surprisingly then when Canada's Financial Post reported on November 23 that Asian, Saudi, Japanese, Swedish, Austrian and Sudanese (with foreign capital) companies were considering buying Talisman's assets. Thus the effect on the situation in Sudan could be negligable, even negative, while this precedent also means that other US listed companies will not be able to compete on level terms with companies from other parts of the world. A lose-lose for business and society. It is difficult to see how issues such as these can be tackled without effective intergovernmental action. For Nike and for Talisman, the solution may lie in more credible and legitimate mechanisms for democratic global governance.These cases suggest that protesters' concerns about a lack of such effective and legitimate mechanisms to check transnational corporations may also become a strategic business concern. You don't always value something until its gone, and after decades of de-regulation, we see that business actually needs regulation. Combined with the issues of 'third world' debt and currency speculation, there is an emerging business case for so-called 'anti-capitalism' or 'anti-globalisation.' Zadek's paper does acknowledge that the carrot approach to corporate responsibility may not be sufficient, and that various sticks "to hold global institutions - including multinational business organisations-globally to account" should be considered by government. Thus a new level of analysis for corporate responsibility may emerge, which focuses on where and in what ways a corporation lobbies for or against intergovernmental cooperation to promote sustainable development. Perhaps it is this which should be discussed in social responsibility reports?
"There is an emerging business case for so-called 'anti-capitalism' or 'anti-globalisation.'"---
Reporting developments
According a recent review of the largest 100 companies listed in Fortune magazine's August 2000 Global 500 14
The reporting framework being developed by GRI received a significant vote of confidence when in November the UN's Global Compact office announced that they had formed a new co-operative framework. In the future, company submissions made under the aegis of the GRI could also be considered as submissions fulfilling the participation requirements of the Global Compact. Georg Kell, Executive Head of the United Nations Global Compact Office, explained that the two approaches are mutually consistent. "The Global Compact promotes responsible corporate citizenship through learning and action on the basis of nine universal principles, whereas the Global Reporting Initiative promotes transparency and accountability through reporting," he wrote. "Companies may wish to use their involvement in the GRI as an example of their commitment to the Global Compact."
It was a busy period for the Global Compact, which was the subject of events in various countries including Latvia, Spain, Russia, UK, Philippines and Brazil. The Employers Confederation of the Philippines (ECOP), in cooperation with the Philippines Chamber of Commerce and Industry (PCCI), with the support of the International Labour Organisation (ILO), held a meeting on the UN initiative that was attended by about 25-30 CEOs. Meanwhile, some of Russia's top business leaders met with Louise Fréchette, the UN First Deputy Secretary General, to discuss corporate responsibility. The meeting, organised by the Union of Industrialists and Entrepreneurs, was the first UN Global Compact meeting to take place in Russia. At the meeting Interros became the fourth Russian company to sign up. Meanwhile, in New York, the second largest Russian oil company YUKOS, with approximately 100,000 employees, signed a partnership framework agreement with UNOPS, the UN system's major provider of project management services. In so doing the company also formally joined the Global Compact. 17
The agreement aims at establishing the conditions for cooperation between YUKOS and interested UN system organisations in the Russian Federation and adjacent countries in a variety of areas. YUKOS said it would like to work with UNOPS, and other UN agencies, in such areas as social investment in post-conflict societies, environmental cleanup and management; educational and cultural exchange in support of peace or stabilisation processes; bridging the digital divide; small and medium enterprise development and assistance; and healthcare.---
Is it just business?
The global spread of corporate responsibility initiatives would not please one former OECD economist, who considers it a 'misguided virtue.' On November 15th Economist ran an article called "The Curse of the Ethical Executive" which summarised the views of David Henderson's new paper for the Institute of Economic Affairs. 18 They wrote: "It is more than 200 years since Adam Smith observed that people enjoy their daily bread thanks not to the benevolence of their baker, but to his selfish pursuit of profit. In that observation and its implications lies the case for market capitalism. In their economic lives, people behave as though they had no regard for the public good. Yet the outcome, through the operation of the invisible hand, serves the public good better than any social planner could ever do." 19 Henderson argues that "the fad for corporate social responsibility is doing real harm" as it "poisons public opinion" against market capitalism by undermining the belief that people's pursuit of financial self-interest is socially beneficial, and by loading costs onto production that then reduce profit, which in turn reduces tax revenues for governments. He argues that corporate responsibility proponent's "capitulation to anti-profit ideology, their pandering to anti-capitalists and their preference for "enlightened co-operation" over ruthless competition" is legitimising the arguments of such critics when they should be tackled head-on. The appropriate response to corporate responsibility should be "not to laugh at it or tolerate it, but to recognise it for the danger it is and oppose it." In an argument reminiscent of Milton Friedman's, some 30 years ago, Henderson posits that "when it comes to business ethics, it is worth remembering that managers do not, as a rule, own the companies they are directing." Friedman suggested that spending money on social responsibility initiatives was literally stealing from owners - the shareholders. However, the legal responsibility of managers is not so much to increase profits as it is to do what the owners want. In recent years this has been to maximise shareholder value, something that is not affected by profits so much as the market for shares, which is a product of a number of factors, including corporate reputation. Furthermore, Friedman and Henderson make the assumption that owners would be solely interested in maximising shareholder value. Instead, with the growth of SRI trillions of dollars worth of company shares are now owned by people who have other motives, including the future health of the planet and its people. Interestingly, Henderson argues against corporations adopting global standards on social and environmental performance. "In a profoundly non-uniform world, uniform standards are a bad idea, especially for the poorest countries, which may be unable to support them economically." This is an argument often heard by exporters from less-industrialised countries, but hardly ever from the people who work in the plantations and factories making those exports. Can we really tell them that freedom from sexual harassment, the right to join a trade union or to work in a safe and healthy environment are luxuries their country is not 'developed' enough to afford? In today's global capitalist system, Adam Smith's baker raises more questions than it answers. What if people want to buy organic bread? What if they want to buy from a baker who runs his own place? Aren't these market preferences? What if one baker buys out most of the other bakeries, increases prices, and moves his operations to a tax-free enterprise zone? Aren't his customers also citizens who can think about what kind of society they want and then take action, as 'citizen consumers'? What if the bakery is owned by shareholders who don't want the baker to maximise profits by externalising all social and environmental costs because they are interested in their children's future? "Growing interest in corporate responsibility reflects how with global communications we are able to reconnect owners, workers, and consumers, and bring capitalism back closer to home" Adam Smith had in mind a much more up-close capitalism than the one we have today, a capitalism where owners, workers and consumers were neighbours and interacted on a social as well as economic basis. Perhaps corporate responsibility might be reflecting the fact that with global communications we are able to reconnect owners, workers, and consumers, and bring capitalism back closer to home? What David Henderson's paper does tell us is that there is a growing diversity of views on corporate responsibility thinking and practice as it enters the mainstream, and that we would do well to consider the political and philosophical assumptions behind our own thinking on the matter. Following are some categorise of emerging perspectives...
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Views on Corporate Citizenship or Corporate Social Responsibility (CSR)
Critics Anti-CSR, seeing it as distracting business from securing profits. Some are market fundamentalists, believing the pursuit of self-interest will create the greatest social gain. Others see that government has a role to play and CSR can distract us from this. Evangelicals Pro-CSR, believing there is a win-win relationship between business and society, and that everyone can do well by doing good. The fact there are still problems is a result of people not realising the benefits of CSR. Pragmatics Pro-CSR, believing that there are some win-wins between business and society but that there are also situations where business needs to be regulated, or rewarded, to ensure socially acceptable performance. Ambivalents Neither pro- nor anti- CSR, regarding that it could be beneficial for some aspects of society and some business's but that it involves the intrusion of commercial values into the realms of the social and human, so it is worrying. Sceptics Anti-CSR, believing that it is purely a public relations exercise to further empower business to control the lives of people in the pursuit of profit maximisation.
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Money fashions change
The impact of corporate responsibility issues within the financial community continued to rise in the last quarter of 2001, illustrated by reports on shareholder activism and the size and number of socially responsible investments (SRIs). Last year saw more shareholder social activism, according to research by the Investor Responsibility Research Centre, with 158 social issue proposals going up for proxy vote. Support for social policy resolutions grew, rising one percent to 8.6 percent. The number of proposals receiving more that 10 percent support also grew significantly, with almost 28 percent crossing this threshold (10 percent is the level needed to achieve continued resubmission of a proposal). Many of the issues responsible for the current rise in shareholder interest have been around for some years, slowly gaining support. Global labour standards, genetically modified organisms, and sexual discrimination were amongst the hot topics in 2001. The US's Social Investment Forum, published its 2001 Trends Report, which showed how assets held within a socially screened portfolio grew at over 1.5 times the rate of similar non-screened managed funds. Between 1999 and 2001, SRI funds grew by more than a third to top the $2 trillion level for the first time ever. This 36 percent growth rate contrasts with the 22 percent rise for all investment assets under professional management in the US. However, the value of individual investments fell across the board. Steve Schueth, spokesperson for the Forum, argued that in a bearish market the fact that social investing has grown considerably over the past two years is remarkable. "This speaks volumes about the staying power of this industry and about the commitment of socially conscious investors to the dual objectives of making money and making a difference," he said. The Forum is a national nonprofit membership association of over 500 social investment practitioners and institutions, dedicated to promoting the concept, practice and growth of socially and environmentally responsible investing. A similar initiative was launched in the European Union by the Belgian Presidency's Conference on Corporate Social Responsibility in Brussels. The European Sustainable and Responsible Investment Forum (Eurosif) is supported by the European Commission, various non-governmental organisations, investment institutions, and five European SRI Forums. The Forum reflects the growing interest of European governments in SRI, with the UK, Australia, Belgium, Germany, France and Sweden all having introduced some form of SRI legislation. The performance of SRI funds was the subject of research for a number of academics. Drs. Pontus Cerin and Peter Dobers of the Swedish Royal Institute of Technology analysed the performance of the Dow Jones Sustainability Group Index (DJSGI) in comparison with the Dow Jones Global Index (DJGI). According to the study, evidence continues to support the claims of others that the DJSGI outperforms DJGI, with a regional exception in Europe, where the DJSGI has slightly under-performed the DJGI. However, rather than assuming that the effective management of social and environmental risks and opportunities was the determinant variable, Cerin and Dobers looked at other factors and found that the market capitalisation value of corporations in the DJSGI is two and a half times larger than the corresponding average for the DJGI. This, coupled with a technology bias in the SRI index was argued to contribute to the better performance of the DJSGI in 1993 and 1999. 20 It will be interesting to examine the performance of the FTSE4good and DJSGI over 2001. "Socially responsible investment is a changing fashion that could set up a virtuous circle of investor confidence in corporate responsibility. A changing fashion can fashion change" Although research into determinant variables for SRI versus non-SRI performance is interesting, what such work overlooks is the importance of fashion in investor behaviour and therefore portfolio performance. In his book The Crisis of Global Capitalism, George Soros 21 argues that perfect knowledge of markets and companies is impossible and that investor behaviour is determined by fashion. Thus, he argues, what is important in financial terms is not so much what is valid in any objective sense but what is believed to be true. Therefore he was happy to invest in "fertile fallacies"-stocks inflated by a common wisdom within the financial community that he didn't necessarily agree with. Having questioned whether social responsibility might actually add costs to business, one investor asked on the ethical investment web-board of Interactive Investor, "is the bottom line that these things are just fashionable funds?" 22 The fact is that the 'bottom-line' of share value is investor's perception of value drivers and of other investor's perceptions of such. Therefore, if SRI is a changing fashion, then it might just set up a virtuous circle of investor confidence in corporate responsibility. A changing fashion can fashion change. Professor Michael Hopkins of MHCi therefore pondered whether, once recessionary fears dissipate, SRI could be the "next dot.com boom." To avoid it going the way of the once-fertile fallacy of dotcomism, corporate responsibility leaders would need to re-shape market regulations in ways that rewarded good corporate performance and punished bad. Then, perhaps, more mainstream investors would come on board and SRI evolve from its position of being a possible fertile fallacy to being a positive fertile fantasy. As Professor Hopkins writes: "September 11th has spurred interest in social development. None of us in that field welcome the fact that vile acts have given impetus to concerns about social development. Nevertheless, the acceleration of interest in social development both through the nation state, and through corporations in recent months, are likely to herald a boom in social investment. Fashion means profits not only on the catwalk but also on the boardwalk!"