Wednesday, December 21, 2011

Top 10 Corporate Responsibility Stories of 2011

It's that time of year again when we consider the big news events around corporate responsibility during the past twelve months. It has undoubtedly been a significant year, with some stories potentially having a huge impact on future corporate responsibility practice or government policy. Nuclear accidents, protests galore, high level corruption - there's been a lot of ugliness again this year. But sometimes you've got to go down before you can go up. Let's hope 2011 will be looked back on as the year that business finally woke up to the new realities of corporate responsibility.

1. Fukushima nuclear disaster
As with the BP oil leak in 2010, no corporate responsibility story dominated the media in the same way that Fukushima did. And for good reason. The world's second worst nuclear disaster (after Chernobyl) slammed home just how risky the nuclear industry could be. Tokyo Electric Power (TEPCO), the company operating the plant, has had to shoulder a lot of the blame for its shoddy risk management, poor planning and siting, falsified safety records, governance procedures, and lots more besides. Its now mired in debt, awaiting either nationalization or a government bail-out. Japanese regulators meanwhile failed in providing adequate oversight, in large part due to overly cosy relations with the energy industry. Not surprising then that Fukushima also had huge impacts more broadly, most notably in a massive swing away from nuclear in the clean energy debate. Germany for one has made a 180 degree switch away from nuclear. Really this was the mother of all corporate responsibility disasters in 2011.

2. The 'Occupy' movement
Starting with Los Indignados in Spain, gradually hitting the headlines with Occupy Wall Street, and then turning into a global phenomenon, the Occupy Movement thrust social equity and democracy into the corporate responsibility debate like never before. We've had anti-capitalism protests before, but the Occupy Movement took a much more focused aim at the titans of the financial sector, and kept an unlikely conversation going for months. The challenges the unruly movement posed for business may not always have been crystal clear, but they've struck such a chord with the general public, and even among senior business leaders, that they can't just be ignored. Demands for tax justice, banking regulation, and more controls on corporate political influence have all received a fillip by the movement. Who know's? Maybe in time, the legacy of Occupy for corporate responsibilty may even surpass that of Fukushima.

3. News International phone hacking scandal
Few corporate responsibility stories can claim the scalp of an entire business, but the closing of the UK newspaper the News of the World, and the arrest of its editor, Rebekah Brooks, in July of 2011 showed just how significant the phone hacking story surrounding News International had become. When the story also took the scalp of the UK's most senior police officer, and landed veteran media mogul Rupert Murdoch in a Parliamentary inquiry, the reverberations were felt near and far. We like our journalists to pursue truth. But when they cross the line and illegally tap the private phones of bereaved families, it's clearly time for a clean up in the media. On the bright side, the story was broken, and vigorously investigated over several years, by the Guardian newspaper. So while we may not trust journalists all that much any more (if we ever did), the story also demonstrated the importance of a strong and independent media as a corporate responsibility watchdog.

4. FIFA's corruption own-goal
2011 was a bad year for integrity in sport. The Pakistani cricket betting scandal, the Sumo wrestling bout-fixing revelations, the Penn State University football coaching sex abuse case, the continued flow of scandals convulsing the Chinese Football Association and the Turkish Football Federation - few sports or countries have managed to come out looking clean. But rising above them all has been the FIFA corruption story, which more than any other sporting corruption story of 2011, demonstrated not just how deeply ingrained corruption is in sport but even how much it is embedded in sporting management and administration. The scandal has been rumbling on at least since 2010 when allegations about bought votes in the 2018 and 2022 World Cup hosting competition started pouring in. After bribery allegations, resignations, and an unopposed re-election of beleaguered FIFA chair Sepp Blatter, the organization finally looked to be getting itself back on track with an internal inquiry and a life-ban for the President of the Asian Football Confederation. But FIFA's proposed roadmap for tackling its integrity problems fell far short of the root and branch surgery that was necessary, and the recent withdrawal of Transparency International from the reform process demonstrates that the FIFA leadership still don't understand the basic principles of ethics management. Students of corporate responsibility need no better case study of how to get it all so wrong.

5. Raj Rajaratnam's insider trading trial
No list of corporate responsibility stories is complete without a big fish being caught. In 2010 we saw the sacking of HP CEO Mark Hurd for expense claims fraud. This year, we had a two-for-price-of-one bonanza with the trial of former hedge fund boss Raj Rajaratnam giving us a guilty verdict, 11 years in jail and a $10m fine for insider trading .... plus the charging of his friend and former McKinsey head Rajat Gupta with securities fraud for passing on insider information to Rajaratnam. As the New York Times said: "it was the longest-ever prison sentence for insider trading, [and] a watershed moment in the government’s aggressive two-year campaign to root out the illegal exchange of confidential information on Wall Street."

6. UBS and the not so 'rogue' trader
Another big story of personal ethical failure was the revelation back in September that UBS trader Kweku Adoboli had managed to lose the company a staggering $2.3bn in authorized trading. With a loss that big, this one makes the list on scale alone. But the real story here was not so much the ethical failings of Adoboli himself (though that clearly was one of the issues at play here), but the failure of UBS to manage the problem before it got out of hand, and the inherent risk-taking at the heart of the financial services industry. In desperate need to repair its flagging reputation, UBS subsequently accepted the resignation of its CEO and installed a new leader with a mandate to move into less risky and less complex investment banking.

7. Twitter revolutions and Blackberry riots
You know when your reputation is in good shape when you get associated with progressive political revolutions like the Arab Spring. After a government telecom crackdown in Egypt, companies like Twitter and Google found themselves center stage in the flourishing revolution. Switch to the ever declining fortunes of Canadian tech pioneers RIM and their Blackberry device, and all you get is an association with mindless looting in London. But whichever way you cut it, 2011 will indelibly be marked as the year that tech companies realized that for better or worse, social protest - and government response to protest - was an inevitable part of their business. Message to CR department: write a policy.

8. Michael Porter's popularization of 'Creating Shared Value'
It was certainly not the most popular article among CSR commentators, but Porter and Kramer's piece in the January issue of the Harvard Business Review on 'Creating Shared Value' has probably done more to get corporate responsibility issues into the boardroom than anything else written this year. Sure, it's simplistic, derivative, and takes cheap shots at a version of CSR that most us don't even recognize. But it's also compelling, endearingly positive, and says a lot of things that most of us have been trying to say for years without anyone taking much notice. Plus it couldn't be more prescient with its "capitalism is under siege" motif. Oh, and Michael Porter said it. So it must be true. Take it from us, CSV is here to stay.

9. Facebook's privacy adventures
There was little doubt back in January that Facebook would probably be hitting a whole bunch of corporate responsibility snags during the year. Once you get so big and popular, it is inevitable that the critics will start sharpening their knives. Greenpeace pushed hard on the coal powered energy issue and eventually scored a well-earned success. But the big issue dogging Facebook in 2011 was privacy. The tech giant wasn't alone since privacy and security continued to afflict a number of companies especially with the shift to cloud computing. But Facebook's privacy battles stand out simply because they affect so many of us and therefore mark the front line of the personal privacy battles with tech companies and regulators. Remarkably, despite a surge of criticism the company initially managed to stave off too big a hit on its business during the year. But last month's settlement with US regulators saw Facebook accused of "unfair and deceptive practices" and resulted in the company facing an extraordinary obligation to submit to independent privacy audits for the next 20 years. And late in December the Irish data protection commissioner gave Facebook 6 months to comply with a raft of new privacy measures for all of its non US and Canadian users. As a result the company has started adopting a far more conciliatory tone with its critics but the road ahead will be marked by yet more battles as we gradually move to some kind of a post-privacy future.

10. The tar sands failed ethical makeover
The year started with the Canadian Environment Minister seeking to make the seemingly indefensible case that the tar sands were an ethical source of oil because they came from a democratic country that respected human rights. The argument was designed to influence US and European policy makers in the run up to critical energy decisions during 2011 such as the controversial Keystone XL Pipeline plan which was designed to bring oil sands crude directly into the US, and the European Commission's deliberations over whether to label tar sands oil as a "dirty fuel" due to its higher carbon intensity. So far the Canadian government and the oil sands producers have failed to win the argument with the Keystone decision being postponed by President Obama and the EC approving the dirty fuel label, which also then attracted further backing from a similar initiative in the State of California. Recently the story has spiraled into the more absurd territory of a banana boycott. The announcement by fruit company Chiquita to reduce their use of tar sands oil in its fleet sparked a concerted campaign by to boycott Chiquita for discriminating against Canada's "ethical oil". You couldn't make this stuff up.

Looking at the two stories book-ending our top ten - the seriousness of a world of nuclear disaster and increasingly dirty sources of conventional energy (such as the tar sands and gas fracking) - not to mention the erosion of privacy, a crisis in capitalism and the never ending scourge of corruption that populate the middle order, it is clear that the corporate responsibility stakes have never been higher. Next year promises to be more of the same.

Photo by IAEA Imagebank. Reproduced under Creative Commons Licence

Wednesday, December 14, 2011

Ecolabels – it’s time for a change

Today, we have a guest post from Heather Mak from SustainAbility who is a co-author of the recently released report Signed, Sealed ... Delivered? which calls for a fundamentally new approach to eco-labeling. We asked Heather to tell us more....
Over 30 years ago, the Blue Angel label came out in Germany. It was significant – a label for consumers to recognize what was the more environmentally sound choice, backed by a standard and certification. Years later, many others followed – including many well-known ones such as Fairtrade, Marine Stewardship Council, Energy Star, Organic – and as of several days ago on the Ecolabel Index, the tally was at 424 labels. But what we needed in the past is not what we need any more. It's time for a change.

In a recent research piece from SustainAbility called Signed, Sealed…Delivered? that I co-authored with my colleague Patrin Watanatada – we looked at the value and challenges that businesses find in using certification and labelling as tools to improve economic, environmental and social outcomes across global value chains. 

What we have found is this - certification, labelling and the standards-setting organizations behind them have been pioneers in building a more sustainable economy. For businesses, they provide a credible, consensus-set reference point for collective action, access to expertise and networks, and can spur demand for certified or labelled goods. This is particularly the case in the B2B space, where labels and sustainable attributes are built into institutional purchasing agreements, such as within large companies or municipalities.

However, there are also a number of challenges. The traits that are the strengths of consensus-based standards – governance and inclusiveness — also pose challenges. For one, some businesses are seeking to advance sustainability as quickly as possible – but sometimes the agreement required in a consensus based model can slow things down. In addition, what is best for all stakeholders is not always perfect for sustainability – for example with many of the forestry standards it is a compromise between best available science and what the industry can handle. Also – the issues that are covered by specific standards may not be entirely appropriate for the business, so there are many cases where companies such as Innocent Drinks have developed their own standards for sustainable sourcing. As labels become more known in specific product categories, they also become a mere condition of entry, which has been the case with Energy Star in electronics. This does not suit most marketing departments who seek to differentiate, first and foremost.

Another challenge to labelling is that it has limits – in particular, limits to scale. Labels are mostly recognized and understood by a niche group of consumers – a typical consumer will not buy an ecolabelled product unless it has a clear “what’s in it for me?” for them. For example, organic products have done well because many believe it to offer them a significant health benefit. This is also why we see an increasing number of B2B standards and certifications that have no consumer facing element, including the Better Cotton Initiative and UTZ Certified for coffee and cocoa, which allows companies to focus solely on making the commodity more sustainable.

What then needs to happen? We think that the model of standards + certifications + on-pack ecolabels needs to evolve, where they are separated and each are used and recognized as part of a larger sustainability toolkit. Standards would provide an increasing, pre-competitive baseline, and brands could compete around this, such as what apparel manufacturers are planning with the Sustainable Apparel Coalition’s index. In concert, partnerships and collaboration with civil society would help to transform supply chains and consumer norms and behaviour, for example with Procter & Gamble’s Turn to 30 cold water washing campaign. Certification could take the form of civil society and government evolving to be more effective and efficient in developing ways to hold business accountable. And lastly, brands – which intentionally started off as trustmarks themselves – would be the main focal point with labels becoming a complementary “back of pack” instrument, such as the case with Method using Cradle to Cradle certification as a design tool to reinforce the brand’s design focus, and using the label for the 1% of its customers who are interested in it.

It’s a tall order to be sure, and a lot needs to happen before this vision can be realized. But in a quickly changing space as sustainability – it’s time that ecolabels had their change too.

Photo by fmg2001. Reproduced under Creative Commons Licence

Wednesday, December 7, 2011

Cleaning up the "ethical oil" mess

With Stephen Harper's government getting plenty of heat at the Durban climate conference over its decision to relegate Kyoto to the history books,  there is a lot of discussion back home about the merits or otherwise of presenting the Canadian oil sands as "ethical oil". It's something we discussed in the blog earlier in the year, but the XL pipeline decision process has kept the issue very much on the front burner. Factor in a controversial TV spot by comparing so-called "ethical" Canadian oil to "conflict" oil sourced from Saudi Arabia that funds oppression of women, and its no surprise to wind up in a heated debate

Yesterday, CBC, Canada's national broadcaster, featured a segment on ethical oil in its popular morning radio show The Current, and we were happy to be invited to participate, along with Kathryn Marshall, the spokesperson for and Jody Williams, a Nobel Peace Prize winner, who has publicly come out against the tar sands.  You can hear the lively discussion, led by the impressive host Anna Maria Tremonti on the CBC website.

A colleague of ours in the law school here at York University, Stepan Wood, has blogged about the show and takes the time to expand upon some critical points that there was hardly even enough time to raise in the conversation itself. As he says:
"For one thing,[ethical oil's] narrow focus on human rights and the rule of law distracts attention from the massive environmental damage and energy consumption involved in extraction and processing of tar sands oil. For another, the claim that tar sands operations fully respect human rights is debatable, with numerous First Nations claiming that these operations impair their rights to clean water and a healthful environment. It is also hard to miss the xenophobic undertones of the Ethical Oil message–it is no coincidence that most of the countries targeted by the campaign are ethnically, culturally or religiously distinct from the white Canadian majority"
The bottom line, in which we and Stepan agree, is that Canada is very much not a leader when it comes to handling its responsibilities around oil extraction:
"To be a real leader Canada would have to show that it is genuinely committed to progress toward a post-carbon economy and improvement of the human rights records of Canadian companies overseas. This would include holding Canadian oil companies to the same high standards wherever they do business in the world. It is disingenuous to say that oil companies in Canada are ethical leaders if those very same companies are busily pumping oil and propping up those same repressive foreign regimes that the Ethical Oil campaign vilifies."
We don't expect that to happen any time soon, and in fact Canada has been content to be relegated very much to the margins of the Durban conference. When even China is criticizing you for setting a bad example, any claims that the country is a leader in providing "ethical oil" are only likely to fall on deaf ears.

Graphic by jfeathersmith. Reproduced under Creative Commons Licence

Monday, December 5, 2011

The tents are gone. But what about the ideas?

The tents are gone in New York’s Zuccotti Park and many other cities - including Toronto's St James Park. Daily we can follow how other Occupy sites in the US are closed down by more or less forceful police actions. By and large, one has to say that the movement as such is fading out, at least in its initial shape.

A good time then to assess two important questions. What, if anything, has the movement achieved? And, equally important: Where is it going from here?

As to the first question, even skeptics like Jeffrey Simpson from the Globe and Mail admit that the movement has put the finger on an important issue, namely the one of income inequality in most developed democracies. He has quite impressive numbers to make his case - that while Canada, thanks to a tighter regulated banking sector, has not felt the brunt of the current crisis quite as badly, the issue of inequality is no less a matter close to home. As Politico’s Ben Smith has shown, the mentioning of ‘income inequality’ in print and web media has quintupled over the course of the Occupy protests (from 91/week to over 500).

So there can be little doubt that the movement has raised long acknowledged issues and has given them a legitimate place in the public. That is a success - no doubt. Other than that though, I am quite pessimistic about the impact of the protests. Despite sympathizing with many of the concerns and this new way of political protest I am rather disillusioned because – by and large – most media outlets, print and TV alike, have not really taken the issue seriously. This certainly applies to the Canadian papers, and apart from TVO, I have a hard time to see some more engaging coverage on TV. Similar observations hold true to the US media – which nearly unanimously ignored Occupy Wall Street for the first couple of days. Even with lone voices such as Keith Olbermann’s on Current TV it is hard to mobilize a broader public when your message is somewhat obscured, watered down or ridiculed.

This leads to my second question of where the movement is going. A good measure of the validity of an argument is still the determination of its opposition. Pepper spraying peaceful students (UC Davis) and 84 years old ladies (Seattle), or fracturing the sculls of Iraq veterans (Oakland) are just the tip of that iceberg which is the violent response from public authorities in the United States.

The destruction of public spaces or safety concerns were popular arguments in Canada. My home is right next to St. James Park where Occupy Toronto took place. The park, a hangout for homeless people and drug consumers on normal days, has never been safer than during Occupy. And it were police vehicles that ploughed the turf into a brown mess two weeks ago.

Be that as it may, the reaction to the movement was decisive and uncompromising. Perhaps no one other than Frank Luntz, long time strategist for the Republican Party has put the underlying sentiments in better terms:
I'm so scared of this anti-Wall Street effort. I'm frightened to death... They're having an impact on what the American people think of capitalism.
He said these words instructing Republican campaigners on how to clean up their language to immunize it against Occupy’s agenda. In my book, that endorsement just takes the cake.

The tension in a society that embraces both capitalism, free markets and private property on the one hand and democracy on the other has always been there. In the early decades of the 20th century we saw it spiraling out of control, leading to fascism or communism in Europe. In the US it led to the great depression, upon which Franklin Roosevelt took leadership in assigning a new role to government in bridging this inherent contradiction.

Capitalism is hampered by two things. First, its inequality of wealth distribution and second, its cyclical ups and downs. Both of which have always put those in a precarious spot who just had their labor to bring to the party of capitalism. The reason capitalism and democracy have now been able to coexist for some 60 years in many developed countries has to do with the fact that mechanisms of economic empowerment and redistribution had been implemented to mitigate against those two problems.

Keynes’ solution was that government addresses the problem, by guaranteeing basic welfare state provision and actively spending in times of economic downturn. The ‘neoliberal’ solution, linked to Reagan and Thatcher’s approach in the 1980s has been to turn labor into ‘mini-capitalists’: boosting home ownership and moving from tax-based to investment-based entitlement plans (e.g. retirement, life insurance) has given millions an active stake in the capitalist systems.

The financial crisis has pointed out the limits of both approaches. The reality of the Occupy movement is that it has been strongly driven by those ‘middle class’ Americans who fell into poverty in the last years. The movement only started now just because the effects of a rigged system are only now painfully palpable for a critical mass of people, as described in the current issue of the New Yorker.

The issue of inequality therefore is here to stay, never mind the preliminary seizure of Occupy protests this past autumn. Looking at the Republican presidential contest in the US offers a somber glimpse at the alternatives. Candidates with no interest in governing and no interest in the institutions that have provided some peace and prosperity for quite some time, dominate the debate. Even George W. Bush’s former speechwriter agonizes about that.  If democracies cannot secure a stake for those who just bring their labor to the market of the capitalist system, it has to come up with some other ‘mortar’ for keeping the social fabric together: religion, xenophobia or crude nationalism are just some of the offers we currently see.

This is not just a North American problem. The rise of the far Right in Europe – from The Netherlands to Hungary – or the militant protests in Greece point into the same direction. A system of majority based rule only works if the majority has some ‘stake’, some form of participation and real grounds of aspiration with regard to the 'system'. This is exactly what is eroding under our eyes. Occupy deserves credit for making these shifts manifest.

One of the sources of antagonism towards the movement was its strong anti-corporate bias. In some ways this preoccupation points towards one avenue of solutions. Heavily indebted governments or individuals disenfranchised by the financial system are not generating the solutions any more which we dearly relied on so far. If we ask for securing the buy-in of the working middle class in the capitalist system, a more active role falls to the corporate sector. In some ways one might argue that this demand has been well heard – the vociferous efforts to shut the movement down certainly allow this interpretation. The social responsibilities of business – beyond avoiding all these obvious scandals surfaced in the financial crisis – certainly extend now beyond pure philanthropy. Paying decent middle class wages, providing employment and affordable access to basic products and services is an imperative - provided we want to see an ongoing coexistence of basic forms of both democracy and free markets. It is in the ‘enlightened self interest’ of business to live up to these demands.

So yes, the tents are gone. But the core issue is here to stay. As is the struggle to address these them.