Sunday, April 22, 2012

Formula One Needs a New Formula

The topic of the ethics of sports (see last week's blog) does not want to disappear from the news. Reading this weekend’s news about the death of a protestor during the Formula One race in Bahrain will raise eyebrows with any CSR (Corporate Social Reponsibility) Expert. Now it’s even Formula One, that has to answer questions of social responsibility.

In itself this comes surprisingly late. As a sport, Formula One is not the environmentally friendliest sport. With 527 million viewers global television audience in 2010 it is one of the most powerful advertising platform for global brands making sure that even in the remotest hut in Indonesia or the poorest village in Tanzania consumers receive due induction the world of global (Western) brands.

But be it is it may, Formula One is certainly a business success. Taken from modest beginnings in the 1970s by its current President and CEO Bernie Ecclestone Formula One is now a multibillion dollar industry. Run by – and for – ‘petrol heads’ the company has never been exposed too heavily to demands for wider social responsibility. On its website you find nothing on CSR (and the like), something however insincere you will find most certainly on most multinationals of this size and world status.

The more exciting it is to see that a company which so far has never felt any exposure to live up to societal demands beyond its bare business deliveries has moved into the limelight of expectations beyond its core function.  What happened to Formula One this weekend in some ways is not new, but it reiterates three fundamental lessons which companies such as Shell, Nike or Google had to learn the hard way  years ago.

Lesson 1: Size matters. Just by sheer dominance in the racing sport, the size of the customer base (i.e. TV audiences), as well as the scope and scale of its global visibility have exposed Formula One to a much larger set of expectations. This has incidentally nothing to do with the legitimacy of those expectations (see below on this issue). It is just a simple fact of the CSR trajectory of companies, that just by dint of their sheer size they enter this space. Ecclestone might want to compare notes with Apple on this issue. Their troubles with human rights and labor conditions in their Chinese supply chain only rose to prominence at the time the company became one of the biggest players in term of market capitalization. In some ways, those companies just face a flip side of their admirable success in the marketplace.

Lesson 2: Global communication channels are not a one way street. Formula One thrives on its global visibility and presence. You have to give this to Bernie: the way he moved the business in four decades is hugely impressive. The small problem here though is: If you want millions to watch your product, in the age of the internet global visibility is not a one way street. People talk back. And they use your visibility to be part of the story. The protestors in Bahrain during the ‘Arab Spring’ had some exposure on global media during the earlier riots. But a brand such as Formula One of course provides an unique visibility to their issues which is just too effective to be missed. The ‘one way street’ metaphor not only works the way that people may ‘talk back’ but also in the way that if you employ the leverage of modern media, you can’t just control that it is only you who uses these conduits.

Lesson 3: If you are a Western brand doing business in a opressive political environment, the more successful you are, the more likely you will be used as a conduit for people’s political aspirations. Now this leads to the question whether the ‘piggybacking’ of protestors on the race in Bahrain is legitimate. In other words, is Ecclestone right when he says that the protests ‘have nothing to do with us’? Is a Formula One race just this apolitical, neutral sports event? Well, the most unequivocal answer to this came from the Al Khalifa Family itself, the authoritarian regime of Bahrain: in the built-up to the event they ran posters all over the place with the slogan "UniF1ed – One Nation in Celebration". This  was a quite undisguised use of Formula One to bolster their claim to have taken steps to improve conditions for their people since the first demonstrations last year caused the cancellation of the 2011 grand prix. Certainly Bahrain’s dictators got the message that Formula One can be used as a conduit of a political message - so why not people with different political opinions? Sports and politics are strange, but well groomed bedfellows. So Ecclestone has to do his homework here, and be it only for the protection of his global brand. This is even more a problem in the future as he has already moved into China and Russia, and is planning to expand into Abu Dhabi, Vietnam or Ukraine in the future.

Formula One needs an approach to CSR. What we saw this weekend was a dismal performance. And we are just talking good business strategy here. When people die; when journalists are restricted or even denied entry to the country; when the whole world watches the rules of fair play, fair competition and due process just being applied on the race course; when the personal safety of athletes is jeopardized (as in the case of team Force India) – a company has to act. Bernie’s reactive and – candidly – stupid and ignorant attitude will make things worse. He has to activate the same savvy and strategic thinking which made his company move into this public space to master the new challenges to which this very success has now exposed Formula One. 

Photos by Stu Seeger and Jaffa The Cake, reproduced under the Creative Commons License.

Thursday, April 19, 2012

Who will be the business ethics winners and losers at the London Olympics?

Corporate involvement in the Olympic Games continues to expand in size and significance. This year, the 2012 London Olympics will boast sponsorship on hundreds of millions of dollars in corporate sponsorship and tie-ins. But as the corporate money flooding into the Games increases, so too do the attendant ethical risks. For all the advantages of being associated with one of the world's greatest and most watched sporting events, it also puts you at the mercy of activists and other critics ready to use the Games' huge pulling power to target big brands. Adidas, BP, Dow Chemical, McDonald's and Rio Tinto are all currently in the firing line regarding their involvement in the London Games. So the big question for the companies is: come closing ceremony time, who are going to be seen as the ethics winners and who will be the ethics losers?

 Four years ago, the 2008 Beijing Olympics also brought to the fore some major ethical risks for the Games' sponsors, mainly because of the potential for being tarnished with the human rights and environmental pollution problems facing hosts China. This time around, it is less the hosts than the companies themselves, accused of anything from using their sponsorship to greenwash their more unsavory practices (BP, Dow), to corrupting the ideals of the Games (McDonald's), and exploiting sweatshop labor to produce official Games sportswear (adidas).

The most tangible of these criticisms regards the sweatshop allegations. Over the years, adidas has worked hard on its ethical supply chain practices, and was one of the forces behind the Sustainable Apparel Coalition initiative. But having already dropped off one list of the most ethical companies this year, the accusations of poor labor practice in the factories producing the official kit for the Great Britain Olympic team will no doubt strike a significant reputational blow to the company.

Let's be clear here. It's unlikely that adidas is actually an outlier amongst apparel companies. A decent investigation into pretty much any global brand's supply chain could probably surface some major failures to live up to their impressive sounding codes. Not because they don't want to meet their commitments, but because there are always going to be suppliers that cut corners given the low cost, high flexibility model of production foisted onto them by the big brands. Adidas becomes a useful target though because of it's high profile in the Olympics. That's the risk that comes with the territory these days. Nike got it right 4 years ago when they published their special report on their Chinese operations months before the Olympics took place thereby taking any sting out of any likely exposé.

As for the so-called green washers, they also shouldn't be too surprised about the controversy they have sparked. BP as an official "sustainability partner" for the Olympics? Wouldn't it make sense to get your sustainability reputation back before wrapping yourself in such a cloak? Maybe they think that at rock bottom the only way you can go is up. But public trust needs careful nurturing if you are going to restore it after a major catastrophe. Not symbolic gestures.

If anybody should know how hard it is to rebuild public trust, it's one of the other Olympics sponsors currently in at the losing end of the PR battle, Dow Chemical. The beef with Dow goes back to 1984, and to a company that they didn't even acquire until 2001, Union Carbide. That the compensation question for Union Carbide's role in the Bhopal tragedy should still be rumbling on is testament to the importance of dealing effectively with legacy ethics issues. Here we are nearly 30 years later with Dow's banner role in the Games being the subject of front page news in India, the UK and elsewhere.

There's already been a high profile resignation from the watchdog supposed to monitor the sustainability of the 2012 Games as a result of the company's sponsorship deal, whilst over in India, the Government itself has now launched a diplomatic offensive against the company after it failed to persuade the London Olympics Committee to drop the firm as a sponsor. There has even been talk of a national boycott of the Games by India, but this currently looks unlikely. 

Let's get this one clear too though. Dow is no evil corporate monster, and has been doing some fine work in the sustainability space. But it does have a legacy problem still to deal with. And until it reaches a more easy relationship with key opinion formers in India (which, frankly seems unlikely in the near future given all that has happened ..... and when the response of the CEO to the current troubles is that any opposition to their sponsorship is "beyond belief"), it should just steer clear of huge global events like the Olympics. Any PR firm worth it's salt should know that. The $10m sponsorship money could have been spent in much more effective ways. Why take the risk of stirring up old problems - and more than that, give them a global airing - when you don't need to? Hubris, insensitivity, poor research, or just bad PR? It would be interesting to find out.

The bottom line is that the Olympics offers great opportunities for corporations to connect with a global audience. But those opportunities do not come risk free. Companies need to have their reputations in their best possible condition before they take such a plunge. And they need to have the PR department, the CSR team, risk management, and the senior leadership working together from the get go to minimize any damage.  Just ask any Olympic athlete. Winning at the Games is all about preparation, dedication, commitment, and having the right team in place to get you there. Business should be no different.

Photo by the|G|™. Reproduced under Creative Commons Licence

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Monday, April 9, 2012

Car Culture

Our blog has been a little quiet these last weeks. No, we haven’t been short on ideas to talk about. Hell no, what a stretch of events we had. The facebook IPO – what a rich field day for business ethics, to which thankfully other voices have added thoughtful reflection. Or the ongoing ‘American Idol AKA Republican Primary’-show, where even a lunatic like Mitt Romney - who as a Mormon Bishop among many other things believes in baptism of the deceased - appears the sanest option; what a rich field of exploring ethical issues in the public sphere.

Next to travelling and a busy work schedule there are a few domestic issues which have kept us busy these days. One of which was thinking about buying a car. Starting a family in North America obviously seems to equate with starting to become a car owner. In Canada, there is always the weather to blame, of course. But with public transport being what it is, trips to the supermarket, the doctor or the daycare just ultimately suggest you need a car.

Buying a car in North America exposes the potential customer to a number of issues we regularly discuss here from a more scholarly perspective. Let me throw in a couple of observations. To begin with, it is rather striking to see how fuel inefficient cars by and large still are over here. This is even more startling as most of the companies which offer cars here are multinationals which in other parts of the world are very well capable of offering fuel efficient vehicles. Be it GM through their Opel or Vauxhall brands in Europe, Ford in their German and British subsidiaries or Chrysler through their Fiat brand in Italy – they would not need to re-invent the wheel to offer cars that use significantly less than, say, 10 litres per 100kms. But you have a hard time to find these cars here, certainly in the affordable segment.

This observation in itself is worth pondering. How often do we hear, not at least from the American President, that the road to less dependency on oil is long and complicated. In fact though, in the short term, we could reduce car fuel consumption by roughly a third if only we found ways for these companies to offer in North America what they successfully sell in other parts of the world. The technology exists, its something else that prevents it from being used.

Mind you, this does not just apply to American auto makers. Checking the offerings of European car companies over here it is striking to see, that they just offer their largest, gaz guzzling versions over here. In Germany, I can buy a BMW X3 (mid size SUV) as a small Diesel (with ample performance) which just needs a little more than 5l/100km, whereas in Canada, the smallest option is a 240hp muscle man which roughly drinks double of the German option. And don’t forget we are talking about the company that prides itself on being the leader in the Dow Jones Sustainability Index for seven consecutive years!

Our readers might by now have raised the odd eyebrow about me mentioning the anathema of ‘SUV’ on an ethics blog. But yes, that’s what I am looking for. Mind you, in the beginning I just thought I might get a mid size car in the ‘wagon’ or ‘estate’ version. Like the proverbial Volkswagen Passat ‘Kombi’, in which a generation of German kids over the last decades has been raised. No such luck over here though. As soon as you are looking for a mid-size car with some trunk and loading space your only option with most manufacturers are small/mid size SUVs. Again, even if Volkswagen offers a nice Passat Wagon in Europe – here they send you towards their ‘Tiguan’ SUV  which starts with the modest, baby friendly engine power of 200hp!

Pretty much all car companies now serve you an SUV-only diet if you are looking for a practical and spacious car. With some exceptions from the Far East, all the offerings are over-motorized and loaded with gadgets such as four wheel drive, monster tires and racing gear which no one will ever really make use of.

Now one can argue that companies just cater for a certain taste of consumers. But my short experience as consumer in Canada so far has shown me that there is little choice beyond just some budget utilitarian options to drive a nicely designed, luxurious, practical car that is fuel efficient. Given that all the companies I checked have those on offer in other parts of the world points the finger in another direction.

While shopping around, I took this week’s New Yorker with me and found the article on ExxonMobil’s approach to governmental relationship in a funny way elucidating. It looks to me that my experience in the showroom of car dealers is maybe more the result of years of targeted lobbying by automakers and oil companies. The reason why GM or Mercedes offer fuel efficient cars in Europe has little to do with the fact that the consumers over there are so much more enlightened. It is more the result of stricter governmental control over fleet consumptions of car manufacturers and generally higher taxed gas/petrol.

In the US – as evidenced in detail by the mentioned article -  big oil&auto have been quite successful in keeping gas prices low and fuel consumption high. Even with stricter regulation around fuel consumption for cars, the exemptions for trucks have just created this loophole and in some ways motivated companies to move more of their offerings into the SUV category. All this political power of industry is nothing new though. Stan Luger has published his brilliant historical analysis years ago, and it still seems to hold true today. It is just interesting to experience what this really means for everyday life from a consumer’s perspective. 

North America and its ‘Car Culture’, i.e. its total dependency on the car for normal work, family and social life is a rather bleak reality. Americans now spend an average of 100 hours a year commuting by car – more than the average two weeks of vacation for most people here. Test driving one of those over-motorized SUVs this week also elucidated the Foucaultian nature of driving over here: just playing a little with the gas nozzle gets you into speed regions far beyond the ridiculous 100km/h which represent the limit here in Canada. All that money spent on such a car – and it is just good to show you yet another barrier, another rule by which our lives are constrained, restricted and domesticated...
Photo by JMR Photography, reproduced under the Creative Commons License.