Top 10 Corporate Responsibility Stories of 2012

This year may have lacked the huge catastrophes that have dominated the corporate responsibility headlines of the last couple of years (such as BP's oil spill in 2010 or TEPCO's nuclear disaster at Fukushima in 2011), but 2012 has probably been more packed with serious incidents than any of the previous years. We had real trouble putting these in any kind of order and even getting down to just a top 10 of big stories was tough  - and meant we had to jettison a few favoured good news stories about corporate responsibility just to be able to capture all of the bad news. So it nearly became the Top 15 Corporate Irresponsibility Stories of 2012. But in keeping with tradition, here's our view of the top 10 of the highlights and lowlights of a jam-packed year of corporate responsibility stories. And if you think we've got it wrong, or want to change up the order a bit, do add your comments below.

1. Apple's supply chain odyssey
If there is one thing that seems to be guaranteed now, it's that the tech giants will be at the forefront of the corporate responsibility agenda for the forseeable future. If nothing else, it's simply a function of their size, power and ubiquity. In 2010 we had Google facing human rights issues in China; last year was Facebook's privacy battles. And this year, Apple's ongoing supply chain issues really exploded into the public consciousness, thanks in part to the New York Times stories that kicked off the year. Worker suicides, factory fires, poor labour conditions - none of this was exactly new, but one way or another 2012 saw Apple take over from Nike (and tech take over apparel) as the poster child of inhumane supply chains. Apple reacted fast once the tide had turned, but for many it was too little, too late. Even their own internal audits provided evidence of widespread breaches of their policy. As the bad news rolled in, the company that so-often seemed immune to criticism started to show signs of serious reform. Instead of secrecy, it started moving towards greater transparency, joined the Fair Labor Association and initiated third party inspections, and now reports monthly on the working hours of over a million workers. In what may turn out to be the most significant move yet, the company has begun manufacturing some of its Macs not in China, but in the US.

2. The LIBOR scandal
2012 was a bad year for a finance sector that seems increasingly incapable of holding onto whatever public trust is left after the financial crisis and its aftermath. Whilst the US regulators' continued clampdown on insider trading gained yet more scalps, most prominently former McKinsey head Rajat Gupta, it was the arcane field of inter-bank lending rates that dominated the financial front pages. Most of us probably didn't even know what a LIBOR was until this year, but revelations of deliberate fixing of interest rates among major banks in Europe during the late 2000s means that we all now know more than we want to. First, the CEO of Barclays was forced to resign in the wake of investigations by UK regulators. Now, the Swiss bank UBS has agreed to pay $1.5bn in fines to the Swiss, UK, and US regulators for manipulation of interest rates that according to Britain’s Financial Service Authority, was so “routine and widespread” that “every LIBOR and EURIBOR submission, in currencies and tenors in which UBS traded during the relevant period, was at risk of having been improperly influenced to benefit derivatives trading positions.” Investigations continue, and it is clear that other banks and possibly brokerages will be drawn into the fray. Perhaps the major legacy of the scandal though will be the startling picture it has provided us of the "horribly rotten, comically stupid" alternate moral universe that traders inhabit.

3. HSBC's money laundering fine
If the LIBOR scandal wasn't enough, HSBC's record breaking $1.9bn settlement with US regulators for money laundering in Mexico really capped a year that demonstrated how readily financial services companies could deliberately flout the rule of law, and bypass their own control systems with impunity. The HSBC settlement followed similar (though smaller) money laundering settlements against foreign banks including ING and Credit Suisse. What was particularly remarkable with HSBC was the fact that despite having strong evidence the authorities elected not to indict the bank out of fears of possible financial collapse.  The message? Four years on from the financial meltdown, some financial institutions are still too big to fail ... but their licence to operate looks increasingly at risk.

4. Bangladesh factory fire
The death of 112 workers in the Tazreen fashions factory fire of November marked probably the saddest moment for corporate responsibility in 2012. It also provided a powerful reminder that the global apparel industry still had not got its house in order regarding working conditions in the product supply chain, despite two decades  of codes of conduct and factory audits. Tazreen was making clothes for global brands such as Wal-Mart and Sears, who remarkably did not even know that their products were being manufactured there. All in all, a devastating wake-up call for the world of supply chain monitoring.

5. Lonmin mine shootings
Described by the BBC as the bleakest moment faced by South Africa since the end of Apartheid, the shooting of 34 striking miners by police at the Lonmin Marikana platinum mine demonstrated the escalating difficulties of doing business in the global mining industry and in an increasingly fractious South Africa in particular. Lonmin tried to remain above the security crisis, which in total claimed some 44 lives, but a company that not so long ago had the highest CEO:average worker pay gap on the FT 100, operating in one of the most unequal countries on the planet was bound to breed resentment.  Unfortunately the more fundamental reform required to significantly ease the tensions at Marikana looks unlikely.

6. Wal-Mart's Mexican corruption scandal
Wal-Mart wasn't the only company put under the corruption microscope in 2012. Canadian engineering firm SNC Lavalin, among others, was another high profile casualty of increased vigilance among national prosecutors. But the Wal-Mart de Mexico story makes it into our top ten a) because it marked such a sudden reversal of fortune for the company after its much vaunted CSR makeover of the past few years; b) because retail, unlike construction, is rarely a site for major bribery.  Many of the facts are still to come out, but a devastating investigation by the New York Times points to Wal-Mart's Mexican business being a "an aggressive and creative corrupter", systematically using bribery to obtain store permits for its rapid expansion and subverting democratic processes and regulatory safeguards in the process. Critically, the company was also found to have deliberately hushed-up the problem to protect its burgeoning reputation, closing down an internal investigation in 2006, and failing to report any of the illicit payments to the authorities. Suddenly all those nice sustainability initiatives don't look quite so pretty.

7. The BBC's Newsnight sex abuse fiasco
With the fallout of the News International phone hacking scandal still very much a part of the UK media landscape, the last thing the sector needed was a scandal at the most trusted media organization of them all, the BBC. But when the 2011 decision to terminate a Newsnight investigation into sex abuse claims against the recently deceased, former BBC presenter Jimmy Saville came to light this year, it because clear that something was wrong at the redoubtable British media organization. It was left to a rival broadcaster to finally break a story that has since become probably the largest serial sex abuse case in UK history. The BBC then spiraled further into disaster when Newsnight broadcast sex abuse claims against an unnamed senior establishment figure that were very quickly discovered to be untrue. The Director General of the BBC resigned amid the panic and confusion whilst a subsequent report into the BBCs handling of the Saville investigation labelled the organization "incapable and chaotic" with a culture of distrust. It's better than "immoral and deceitful", but hardly a ringing endorsement of responsible management.

8. Starbucks' "voluntary" tax payment.
After bubbling away for a few years, 2012 was really the year that tax justice broke into the mainstream consciousness. Campaigners have targeted various companies over the years, but when the spotlight fell on Starbucks, along with Amazon and Google, for their failure to pay tax on millions of dollars of profits in the UK, activists, politicians and consumers called for change. Not that any one suggested that any of the companies had broken the law, merely that such aggressive tax avoidance didn't align with many people's conceptions of fair play. Starbucks' offer to make a "voluntary" payment of $30m to make up for the shortfall suggested that they could read the message in the coffee grinds about where the debate was headed - towards greater expectations placed on companies to be "good citizens". But clearly the onus is also on politicians to beef up the rules ... rather than just criticize companies who are able to take advantage of their shortcomings.

9.  The Super PAC election
The US election was one of the big news stories of the year, and one of the main corporate responsibility issues swirling around the election was about the role of corporate money in politics. This was the first US national election since the 2010 Citizens United legislation which effectively removed any cap on political donations by companies. No surprise then that the election was the most expensive in history with corporate money aggressively channelled to candidates through super PACs (political action committees). Even though this was expected to benefit former hedge fund boss Mitt Romney, Obama came out ahead, perhaps demonstrating that money can't always buy elections. But when even the Harvard Business Review blog starts carping on about getting corporate money out of politics, you know that a tipping point could be fast approaching.

10. BP oil spill aftershocks
Just because it was our no.1 story two years ago, that doesn't mean the BP oil spill isn't still telling us something new about corporate responsibility. This year, we saw the company slapped with a record $4.5bn fine from the US Justice Department after it admitted to criminal responsibility for the explosion that led to 11 deaths on the Deepwater Horizon well. The company could still face a bigger fine following a civil suit for the damages caused by environmental pollution. But maybe the most significant aftershock of the spill was the decision by the US Environmental Protection Agency to suspend BP from bidding for federal contracts over their "lack of business integrity". Although it's still unclear how long the suspension will last, this suggests a potentially significant shift in the government's strategy for dealing with irresponsible companies. Or maybe it just means that BP didn't get its lobbying strategy right!


Photo copyright meteo. Reproduced under Creative Commons Licence

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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Corporate responsibility infographics - the good, the bad and the ugly

Data visualization, or the creation of "infographics", has been gradually seeping into the corporate responsibility world. And its no surprise. When their designers get it right, infographics can tell you an important story in a wonderfully accessible way using cool, hard facts. But when they get it wrong, it's just, well..... a mess. Too much data and it is confusing; too little and it risks being banal. And using the wrong data can simply discredit the whole enterprise from the beginning.

So what does a good corporate responsibility infographic actually look like then? We've been taking a good look at the craze for infographics, and picked out some of the best and the worst that relate to corporate responsibility issues. There are more and more appearing every day, so we're not claiming to provide anything like an exhaustive review, but here are a few examples that we think give a good flavor of the potential and pitfalls of turning business ethics into pictures. And if you don't agree with us, then please tell us why in the comments field ..... or better still, create an infographic to explain it all!

The Good

There has been a few corporate taxation infographics doing the rounds in the last couple of months. What we like about this one from onlinemba.com though is the funky design (you've gotta love that faux factory styling), the solid citations, and the clear storyline. Yes, it takes a fairly hardline anti-business stance, but it doesn't pretend the answers are obvious or simple.



Another powerful infographic is this one detailing the role that pharmaceutical companies play in influencing doctors to prescribe their medicines. We like it because although it is a little on the long side (click on the image for the full image) it tackles an important question; it is controversial without being sensationalist (again, the referencing is pretty tight), the design is smart, and it rounds out the story with advice on what you can do to make a difference. Let's call it activism meets journalism.

Of course, infographics can be a lot more than just simply static visuals. And they don't have to be critical of business! Videos, animations, music and all kinds of possibilities are out there to tell corporate responsibility stories in interesting ways. We like this one from Fortune and CNN because it offers some nice simple interactivity about something all of us care about - what makes some places better to work in than others. Based on Fortune's annual 'Best companies to work for' survey, it not only shows which companies score well, but also lets you search the kinds of words that employees use to describe their companies - the top ones being "people", "time", "family" and benefit". But some of the cross-company comparisons are really interesting. Whilst top spot holder SAS includes words like "care", "life" and "health", Goldman Sacks at 23 emphasizes words like "best", "firm", "people" and "individual". Just goes to show that what makes a firm good to work for is very much in the eye of the beholder.

The Bad


Corporate tax dodging again. But this time the infographic is less successful. Sure it has an easy to understand message, but it doesn't have the richness of data to be authoritative. For a start it doesn't cite its sources, which immediately threatens some of its credibility. Second, it doesn't look to explain any of the facts it presents, but instead relies on some slightly shonky political posturing. Good infographics should make you feel like you've read an informed newspaper article. This comes across more like a bumper sticker.


Source: US Uncut - No Cuts Until Corporate Tax Cheats Pay Up!


The Ugly


Sometimes, not even well researched corporate responsibility infographics hit the mark. Getting the balance right between telling a clear story and getting the facts on the table can be tricky. We wanted to love this incredibly informative infographic about the BP oil spill from 2010 by Carol Zuber-Mallison but frankly it just doesn't cut it like it should. It's simply too crammed with data. Sure, it tries to describe a complex situation of corporate responsibility, but if infographics are going to be successful they've got to render that complexity easily understandable in a single narrative. This tries to cover too much. Plus, given all the data, the referencing could be better. How else is anyone supposed to check the facts? So although this is an impressive effort in many respects - especially the crazily ambitious attempt to update it in real time - it's ultimately an infographic fail. Too much info, not enough graphic.

Top 10 Corporate Responsibility Stories of 2010

Mermaids protesting the BP oil spill. Photo by Johnathaneric.

 It's been a big year for corporate responsiblity. A huge oil spill, continued ructions in the financial sector, landmark decisions in the courts, and a new dawn for online companies around human rights issues. It is never easy to pick the most important stories of the year. Some get huge coverage simply because they feature big brand companies. Some hardly even scratch the public consciousness despite having major implications. In other cases, it can be difficult to determine accurately what their long-run significance will be.

But here in the Crane and Matten control room, we've put our heads together to come up with what we regards as the top 10 corporate responsibility stories of the year. These are the events that we think will have the most lasting impact on the field. But it was a hard choice - narrowly missing the cut were the 10 year anniversary of the Global Compact, the FIFA World Cup corruption scandal, Unilever's "Sustainable Living" plan, Apple's labour violations, Wal-Mart's latest announcements on sustainable agriculture, Jerome Kerviel's massive fine, and American Apparel's rollercoaster ride through 2010, among others.

But, hey, not everyone can be a "winner". So if you think we're worng, or if we've missed off your biggest story of the year, do let us know. And while you're at it, take a moment to complete our poll on the right to help us find the top stories according to our readers.Here, though, is our top 10.

1. BP's oil spill in the Gulf of Mexico
Deepwater Horizon was one of the world's largest ever oil spills, and understandably this story absolutely dominated 2010. Not only did it put a final nail in the coffin for BP's once vaunted sustainability reputation, but it heralded a major rethink about the viability of deep sea drilling. BP didn't cover itself in glory by failing to come up with a realistic remedy until far too late - and ended up picking up most of the tab, thereby putting paid to the usual assumption that pollution is simply an 'externality' of business. Really, this was the mother of all corporate responsibility crises in 2010.  

2. Google's battle for free speech
Google's withdrawal from China at the beginning of the year was a landmark decision in the battle for free speech on the web. A real clash of titans, no other story this year illustrated better the clash between government and big business around human rights issues. But Google's subsequent legal problems in Italy, where senior executives were convicted of privacy violations, demonstrated just how complicated this battle is going to be. 

3. WikiLeaks publication of the embassy cables
Who knows where this one will end up, or just what its long term significance will be for corporate responsibility? But it's hard to deny its significance as a major turning point in the fight for greater government transparency, and the contested role of the media and NGOs in bringing confidential information into the public realm. Heralded by some as the first great cyber war, the WikiLeaks maelstrom inevitably catapaulted online companies into the fray with predictably unpredictable results.   

4. Citizens United decision
The only court case to make it into the Top 10,  but according to President Obama the 5-4 decision by the US Supreme Court in Citizen's United vs Federal Election Committee "reversed a century of law" and "opened the floodgates" for corporations to play an ever greater role in US politics. According to the ruling, companies and other special interests can now spend as much as they like on influencing the outcome of elections. And why? Because despite their vast resources, companies should have rights to free speech on political matters the same as any other citizen. An historic ruling.

5. Toyota’s product safety recall
This case grabbed a lot of headlines in 2010, mostly because of the very scale of the recall and Toyota's previously unblemished safety reputation. This was a huge embarrasment for the Japanese car maker and showed up serious problems in the firm's management culture.

6. Bank bonuses 
Bank bonuses stayed in the headlines during 2010. Despite continued economic problems, huge public bailouts in Greece and Ireland, persistent unemployment, and widespread austerity measures, some banks managed to award bigger bonuses in 2010 than ever before.  No surprise that the public stayed angry with a bonus culture apparently so far removed from their day-to-day problems. But European regulators finally seemed to get the message with new guidelines released at the end of the year that looked set to dramatically change the bonus landscape across the entire continent.

Butcher in Haiti with food vouchers used to stimulate trade. Photo by DFID

7. Corporate response to the Haiti earthquake 
Few stories better illustrated the precarious role of business in international development than the corporate response to the Haiti earthquake back in January. The arrival of cruise ships full of vacationers represented for many the unacceptable face of corporate insensitivity and amoral consumerism. Yet, few denied that business had to be an essential ingredient in getting the stricken country back on its feet again. 

8. Greenpeace campaign against Sinar Mas palm oil 
Greenpeace won Ethical Corporation's campaigner of the year in 2010 for its work in combating deforestation. This was exemplified in the NGO's campaign against Indonesian palm oil producer Sinar Mas which saw them force Unilever, Nestle and others to cease buying from the company during the year. Greenpeace's spoof ad on YouTube for the Nestle chocolate bar Kit Kat went viral demonstrating how campaigners were effectively harnessing social media for anti-corporate protest. 

9. HP's termination of CEO Mark Hurd
Hewlett Packard has had its ethical ups and downs over the years, but few expected the company to follow through quite so severely when CEO Mark Hurd was found to have made fraudulent expense claims to cover up a relationship with a female contractor. Rejecting Hurd's offer to pay back the $20,000 he'd received for the claims, the highly regarded leader was ousted by the board for failing to live up to the company's code of conduct. This was an impressive commitment to ethical rules by anyone's standards. However, it angered many who thought the company was shooting itself in the foot. A tumbling stock price and Hurd's instatement at competitior Oracle showed how much pain there could be in doing the right thing.

10. India's 2G licence scandal
OK, so actually this happened in 2008, but it was only in the closing months of 2010 that the full extent of the 2G telecom spectrum licences scandal began to be revealed. In what some have called India's biggest scandal since independence, Telecommunications Minister Andimuthu Raja was forced to resign over allegations that he lost the Indian Government some $38 billion in revenues using an opaque permit system that was riven with corruption. Leaked tapes of secret phone calls with corporate lobbyists have poured oil on the fire. This could yet become India's Enron moment.

So that's our Top 10 for 2010. Doesn't make for particularly edifying reading, but it hasn't been all bad. In amongst the scandals and corruption there have been some genuine cases of ethical leadership in 2010, where companies like Google and HP have had to make some hard ethical choices that have cost them dear. No ne said corporate responsibility was easy.

What about politics?

Those of you who have followed this blog and our work over the last years will know that we have taken a special interest in the political role of private corporations. So what are the vibes here at the UN Global Compact Summit?

Well, the general gist seems to be that most of whom are quite happy to pass on more responsibility for the environment, human rights etc. (i.e. the ten principles) to the private sector. The most poignant role in this probably put forward by the UK's new Minister for International Development, Alan Duncan. I liked him when I lived in the UK, but was a bit underwhelmed by what he said. Basically he is a pink Thatcherite, talking about shareholder value and how companies can combine this with development. He ducked questions on BP and whether there is a role for governments in preventing these disasters, which was a bit weak, I found.
A refreshing accent was set by Mike Bloomberg and what the City of New York is doing. He was kind of cool, I found, saying that the City's carbon footprint is now at a third of the average American city. He said the City is willing to lead, but he expects business to do its part as well.


So far well and good. If we release corporations into this sphere though, what about democracy and political principles. There is next to no discussion on this here, apart from the occasional reference to more accountability and transparency. Maybe that should be put on the agenda for the next decade. But this will make it a really warranted area of further research for the academic community. How to make this shift in governance of societies one which is really in the interest of those who are governed? Currently, our best hope is that we will be governed by all those 'benign dictators', which are currently gathered here.

Oil spills and externalities

What does business owe the world? OK, now that's a pretty big question. Where do you even begin to start the long list of demands and grievances that are stacking up against the corporate world? But this is the question that the Harvard Business Review has posed in a new online debate launched a week or so ago. It's a provocative starting point, and not simply (as some might have expected from HBR), an excuse to really ask 'What, if anything, does business owe the world?'.

With uncommon good timing, the debate kicked off with a lively exchange of blogs from invited contributors on the issue of externalities, and whether the internalizing of externalities - or moving from external to internal (e2i) costing of social impacts - is an appropriate expression of corporate responsibility. We say good timing because just as the first part of the debate was drawing to a close, the US began to experience one of its worst oil spills in history in the Gulf of Mexico. Now pollution is a standard example used to explain externalities - i.e. it imposes costs on those not party to the original transaction. So it is little surprise that the 'blame game' regarding responsibility for the current spill has already started. Obviously though, because this is the result of a specific accident rather than just standard run-of-the-mill everyday pollution, the questions over whether BP, the rig's owner and operator, should be held responsible are somewhat more straightforward. It should. US President, Barack Obama has said as much. In the discussion around whether firms should e2i, we need to consider social and environmental costs imposed on others from 'normal' business activity, not just accidents. So the question then becomes, should BP take responsibility for the impacts of its products (e.g. the pollution caused by burning its gasoline), for example by adopting a pricing model that accounts for the full environemntal costs of petrol.

The HBR debate seeks to tackle this question head-on. The first post is written by Chris Meyer and Julia Kirby and stems from their April HBR article arguing that companies indeed should focus on externalities. Or as they put it, "the true measure of corporate responsibility—and the key to a business’s playing its proper role in society—is the willing, constant internalization of externalities." This is nothing new in itself. A focus on externalities has been a feature of the CSR debate for some time. In fact in our CSR textbook, published a couple of years ago, we specifically identified "Internalizing or managing externalities" as one of the 6 core characteristics of CSR. So in one sense it's kind of disappointing that HBR is passing off standard business school textbook material as a "Big Idea". That said, the article (and blog) do accomplish an important task in bringing these ideas into the mainstream, and in a way that is readily digestible by executives. They also do a good job in stirring up some important debate on whether this is indeed the right way to go about CSR, and about how it can be practically accomplished.

Of course, the proposition that firms should consider e2i remains for some a distinctly controversial idea. In the HBR debate, Michael Schrage provides a lively, if slightly scatty, account of why in fact it's "the road to hell". In doing so, he makes some good points - and probably captures the understandable fears of many in the business community. But in presenting "the natural conclusion" of the e2i philosophy - that businesses become accountable for every social impact, however indirect, of their actions - his argument becomes somewhat shrill and reductionist:

"If everything is increasingly interrelated — and it is! — then who won't be aggrieved? Who won't be wounded? Who won't be disadvantaged? Who won't be harmed — or see themselves as harmed — in some meaningful way? What won't be an externality to some third party?"

Yes it's true that once you embark on a path of acknowledging some kind of responsibility for the 'side effects' or 'spillovers' of economic actions, it is difficult to determine a clear line in the sand beyond which you no longer have responsibility. But the point is that no one is saying that firms are responsible for ALL externalities, only that focusing on externalities helps identify those impacts where responsibilities are most critical, and where market mechanisms, namely pricing, can be leveraged to institutionalize that responsibility. It is intereting in fact that Schrager argues that e2i is about more government interference whereas in fact it is a market alternative to regulation. That is, rather than governments dealing with all the problems caused by economic activity, you make companies and consumers more responsible for their own actions by establishing a mechanism whereby the true costs of their activities are factored into the market price. It's no different from establishing a price for carbon, which is one of the best known recent examples of e2i pricing.

That a debate on externalities should provoke a row over government interference is perhaps not completely surprising given the orientation of HBR ... and the fact that their invited experts, for all their starry credentials, are all based in the US. It is hardly the best recipe for starting a conversation on what business owes the world (as opposed to say, what US business owes the US). Some different voices from other parts of the globe would be sure to enrich the debate (...so if that is you, then do take the opportunity to add your comments to the blogs). And you never know, with HBR's timing, by the time the debate gets to its final week's subject of "Are activists out of bounds?" we might have another very real case to discuss (... any activists reading this, now would be a great time to get "out of bounds"!)




Photo by NASA Goddard Space Flight Center. Reproduced under Creative Commons licence

Business and climate change

Observant readers will notice that we've started adding some of our favourite blogs on business ethics-related subjects in the blogroll that you'll find on the right hand side of the screen. The latest addition is Climate Change Inc, the new blog on business and climate change by David Levy, a professor at the University of Massachusetts, Boston. Levy always has something pretty interesting to say, particularly on the politics of business responses to climate change. He's someone whose work we've found stimulating, and have always enjoyed bumping into him at conferences and collaborating on a few things along the way.

The new blog deals with all things business and climate change related, though with a particular slant towards politics and policy issues. We particularly liked this recent post on how the oil industry has recently resurrected its "carbon wars" strategy, including the mobilization of American citizens to protest against proposed climate change regulation. Here's what he says....

"....large numbers of Americans are suddenly getting excited about climate change. They are not, however, worried about rising CO2 levels and the impact on sea levels, hurricanes, or glaciers. They are jumping on buses and crowding into rallies to oppose the proposed energy legislation, which is intended to address climate change. Through placards, slogans, and speeches, the attendees demonstrate their concern that their very way of life – cheap fuel and electricity, even their jobs in energy-rich states – is under imminent attack. This threat is apparently more palpable and galvanizing than climate change, a distant and abstract concern, if not a hoax perpetrated by the same intellectual East Coast Europhiles trying to impose socialist medicine on beleaguered overtaxed Americans.

Perhaps a few of these angry citizens spontaneously joined the rallies in a state of high dudgeon after perusing the 1200 page Waxman Markey bill. Most likely, their transportation and placard messages were organized by Energy Citizens, whose website proclaims that it is “a nationwide alliance of organizations and individuals formed to bring together people across America to remind Congress that energy is the backbone of our nation’s economy and our way of life.” In fact, Energy Citizens was set up and financed primarily by the American Petroleum Institute (API), the US oil industry association, with support from the National Association of Manufacturers and other groups. It has contracted with a professional events management company to plan about 20 rallies against forthcoming energy and climate legislation in Southern US states, with a focus on energy producing states such as Texas. Member companies are encouraging their employees to join in. This project complements a massive increase in lobbying efforts by the fossil fuel industry in the last six months."

Fascinating stuff. And, as Levy notes, a real return to the oil industry's seemingly dead-in-the-water tactics of the 1990s when climate change denial was all the rage and various political strategies were deployed by the sector to derail the gathering climate change consensus. Levy goes on to offer an analysis of why the industry appears to have engaged in Carbon Wars round 2, but admits that a final conclusion is difficult to arrive at given the mixture of motives, interests and positions among some of the key players. However, as we mentioned not too long ago in relation to BP's "Back to Petroleum" strategy, a new conservatism appears to be blowing in the oil industry around sustainability issues (or at least the pretense of progressiveness has lost its allure), so there is much to be gained in the run up to Copenhagen by seeking to tweak the political climate towards a more accommodating pro-fossil fuel position.

Our best bet is that a range of different company strategies may start to emerge again which could derail any kind of univocal industry positioning, which seems to be the aim behind the latest manouevuring. But in the meantime, it looks like the main business action will be in the nonmarket (i.e. political) arena rather than in new market developments, at least until a new climate consensus is reached post-Copenhagen. Be sure to keep up with Levy's blog for all the latest developments.

BP and alternative energy

There was a nice feature article in the Financial Times earlier this week on BP's retreat from its alternative energy business. Headlined 'Back to Petroleum' it argued that since the departure of former chief executive Lord Browne, the new BP leadership had brought about a greater attention to core business in oil and gas .... and that this had meant the "BP Alternative Energy" business unit was being scaled back. Noting the early retirement of the quasi-independent unit's chief exec, the closing of its off-site office, and cut backs on funding, the paper remarked that having led the charge towards alternatives, "BP is now leading the retreat".

To be honest, even under Browne, BP had hardly been gung-ho in its commitment to alternatives. Even with year on year increases over the past few years, by 2008 the company was diverting just 1.3 per cent of its 2008 capital expenditure on solar energy, 2.6 per cent on wind, and a full 93 per cent towards oil and gas extraction (see the handy BP presentation on the Greenpeace website). Hardly a signal of a change of direction. It's no surprise that many of questioned whether the iconic 'Beyond Petroleum' rebranding was simply that - a change in advertising and logo that did little to alter the fundamental substance of the company.

Certainly under Browne, though, the momentum towards renewables, however small in relation to the core business of BP, was unmistakable. It wasn't all just empty rhetoric. The company quickly turned itself into a recognized leader among the big oil companies for its attention to sustainability issues - not that it faced much competition. The strategy, a common one in the CSR toolkit, was to stay just enough in front of the competition to be a leader, but not so much as to risk changing the game and threatening the underlying cost and revenue structure.

Under current CEO Tony Haywood, BP is clearly employing a back to basics approach. There's a lot of sense in some of this - not least in the greater attention being focused now on core health and safety issues aroung exploration and refining. The last thing the company needed was another Texas-style 'preventable accident'. But in stalling investment in the renewables business (not to mention new investments in the Albertan oil sands), Haywood is clearly serious about sticking to the core oil and gas business for the time being and waiting and seeing on alternatives until a clearer message (and more subsidies) come from governments.

We're not sure anyone should be too surprised by BP's reversal given some of the clear messaging that Haywood has given since taking over - such as describing the company as having “too many people that were working to save the world”, and a determined commitment to cut costs in the face of falling oil prices. Perhaps also, we're simply looking in the wrong place if we expect oil companies to be the engines of a low carbon economy of the future. As the FT hints, succeeding in the renewables business requires a very different set of organizational capabilities than in the oil and gas business. Old economy thinking is not likely to equate to a new economy mindset. The future of the energy business is more likely to be found in innovative new business start-ups than among the collossal energy giants of today. Although once the young tigers have proved their worth, it'll be the companies rich from oil revenues that'll be looking to buy them up.

Photo by Mancio7B9. Reproduced under Creative Commons license.