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 Ethicaloil.org 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

Nuclear fallouts

These last weekshave been, if anything, exciting times for anybody interested in the mechanics of international news cycles. While the earthquake, tsunami and nuclear meltdown in Japan were continuing to unfold, the new war in Libya seemed to dominate the headlines for a few days. Now, with more bad news from Japan the topic seems to be back on the agenda.

It is interesting to see how many of the debates of the 1980s on nuclear power are slowly coming back to the fore. Furthermore, the same irrationalities in dealing with risks are coming back on to the agenda. Since nuclear risks mainly exist in the individual’s perception, the debate over the last two weeks has been a splendid laboratory in understanding the social construction processes of reality.

One of the more surprising comments to read came from long-time environmental activist and commentator George Monbiot. In his regular column in The Guardian he shocked many with a relatively straightforward plea in favour of atomic energy. Mostly on the grounds of it being more climate friendly than coal. While his arguments are worth listening to it was surprising how he made his case: even taking the Chernobyl disaster into account, he argued that far fewer people died from nuclear power so far than will potentially do so in the future from global warming.

The interesting point here is not so much this weighing-against-each-other of life, disease and hazards but the fact that in the second decade of the new millennium, one crucial difference to the debate in the 1980s is visible: the spectre of global warming. The way we evaluate and compare these risks largely depends on our subjective evaluation. Monbiot in the British Isles probably has a very different recollection of the Chernobyl disaster than, say, people in Continental or Eastern Europe.

Arguably the country where the Japan disaster has caused the biggest ripples for business and politics is Germany. Not only did Physics-PhD and staunch nuclear supporter Angela Merkel announce immediately a 180-degree turnaround in the nation’s policy on nuclear energy. This was enough to anger large parts of the German business community. It did not help that her Economics minister Rainer Brüderle told industry leaders in a meeting that this was just ‘electoral tactics’ – a comment promptly leaked to the public and leading to his resignation from his role in the Liberal Party FDP.

The biggest winners of the debate in Germany currently are – to no surprise – the Greens. For the first time in history, they have scored enough votes to gain power in one of the most important states (Baden-Württemberg) in the southwest of Germany. The Green party now for the first time leads a state government and Germany has its first Green state premier. And this in one of the most conservative and industrious states of Germany, home to many crown jewels of German business, including Mercedes and Porsche. According to many commentators it was mostly the nuclear topic which swung voters to turn out for the Greens.

Funny enough, our own comments on this blog attracted some interesting attention from the media. We gave a couple of interviews recently – interestingly enough mostly for Chinese and Indian TV stations. Click on the clip (for Omni 2, a Canadian Chinese language program) – it is curious to see what journalists find worth quoting. It was probably the most trivial and banal thing we said in an interview which went on for more than 30 minutes. Which brings us back to news cycles. What a funny world we live in...

Photo by spacepleb. Reproduced under Creative Commons Licence

Corporate disaster relief in Japan: going beyond charity?

With global attention focusing on the rapid escalation of conflict in Libya and desperate efforts to contain the nuclear threat in Japan, it is easy for the ongoing humanitarian crisis in the wake of the Japanese earthquake and tsunami to recede from view. But with reports of the death toll now edging past 18,000, and nearly 500,000 people still living in shelters, the country is still certainly in dire need of support and assistance - and will be for some time to come. A report from the World Bank has estimated that the damage inflicted by the disaster will cost somewhere between $123bn and $235bn, the equivalent of some 2.5% to 4% of the country's GDP. Recovery could take up to 5 years, the report suggests.

Business in Japan has been significantly damaged by the quake and its aftermath. The automotive and electronics supply chain, in particular, appear to have been severely disrupted, leading to delays and shutdowns in production. But as previous disasters have shown, business can also play a major role in rescue and relief operations, as well as in subsequent rebuilding efforts. Wal-Mart famously upstaged the US government in responding effectively to the floods in New Orleans after Hurricane Katrina in 2005. In contrast, after the devastating 2008 cyclone in Burma, international companies were slow to offer assistance. Last year's Haitian earthquake generated a lot of corporate donations, as well as a fair deal of controversy around the role of companies in economic redevelopment and rebuilding projects.

Corporate involvement in disaster relief in Japan has yet to hit the headlines in any major way, primarily, as far as we can tell, because companies have been rather conservative in their responses. That's not to say that companies haven't helped raise a lot of money for the cause, because they have. According to the US Chamber of Commerce's, Global Aid Tracker, which does a pretty impressive job of keeping tabs on such things, global corporate assistance for the Japan crisis has now exceeded $158 million.  This includes 100m Yen (about US $1.2m) each from companies such as Bayer, BP, Hyundai, LG, Nikon, and others. Even higher sums - up to 5 times as much in fact - have been committed by the likes of Canon, Citigroup, Dow, GE, Mitsubishi, Nintendo, Sony, and Wal-Mart. As you can see, it's not just Japanese companies either, but global companies, especially those operating in Japan doing the giving. The Japanese Red Cross, however, appears to be the most favoured recipient.

Some companies have linked up their corporate donations with employee giving, often by matching employee donations, as a way of engaging workers in CSR initiatives. An interesting development here has been the tie-up between the CSR services company AngelPoints and Network for Good to provide a free on-line giving platform to the firm's clients. As the firm's press release puts it:

From now until the end of April, two million employees from companies such as Newell-Rubbermaid and Sterling Savings Bank will have access to a centralized online donation platform that will facilitate the immediate transfer of funds to organizations in Japan that need it most.

In fact, the on-line world has probably seen some of the more innovative responses to the disaster from the corporate community. Whilst some, such as iTunes and LivingSocial have simply enabled users to readily make donations through their sites, various Japanese gaming companies have developed cause-related game tie-ins to engage their users in contributing to relief efforts. The gaming demographic is notoriously difficult to enlist in social programmes, so it is certainly a positive sign that gaming companies are using their core products to reach out in this way. Zinga, the US company behind the hugely popular Facebook games, Farmville and Mafia Wars has followed up its Haiti giving initiative with a Farmville in-app donation vehicle which enables users to donate by buying virtual goods within the game - in this case, a daikon crop. Launched within 24 hrs of the disaster, online gamers reportedly went on to help Zinga contribute more than US $1m in just a few days. For a company with a tagline of 'connecting the world through games' (and already drawing fire for its addictive effect on young players), Zinga's ability to use social media to connect gamers around the world with major social problems is a surefire winner.

Elsewhere, there has been a disappointing lack of innovation among the corporate community in the Japan disaster relief. Providing money and in-kind goods is one thing, but what really can make humanitarian aid efforts stand out are when they leverage core corporate capabilities. Japanese manufacturing companies, with their decades of experience in just-in-time management and lean manufacturing practices, could be deploying their logistics and supply chain prowess to relief efforts. Law firms and financial services companies could be putting their skills towards helping displaced families, many of which lack earthquake insurance, sort out the legal and financial mess they have found themselves in rather than simply donating cash.  The list goes on. Short-term charity is fine as far as it goes, but companies should know that a more strategic approach to corporate responsibility has the potential to add considerably more value both to the stricken Japanese people and to themselves.

Going nuclear?

This weekend is another proof of the absurdities of short-lived international news cycles. While the revolution in Northern Africa/Libya is still ongoing but features rather low on news sites, and academic scandals are forgotten totally - the earthquake plus tsunami in Japan has swept most other stories from the screen.

Fair enough. What we have seen from Japan has been harrowing. Crane & Matten have taught and worked with many Japanese students over the years and our thoughts have been with them in recent days. We hope that they and their families are all fine and wish them our heartfelt best. Let us know how things are going!

One facet of the catastrophe though moves it clearly to a next level of watching some apocalyptic science fiction movie: We are talking about the ongoing news story about the explosion and potential meltdown of so far four nuclear reactors (by the time we write this). The nuclear beast is rearing its ugly head again.

We remember when the Chernobyl accident happened in 1986 many western commentators put much of the blame on the allegation that the Soviets had old technology, they did not run things properly and anyway, it just went to show that communists are not good at anything. Now – this is Japan, one of the high tech capitalist nations of the world. Sure, this was triggered by one of the top 5 earthquakes in history. But in Japan, earthquakes are not what extreme snowstorms are in Britain. The Kobe earthquake which claimed six and a half thousand lives happened just 16 years ago.

The event hits at a time when nuclear power was experiencing a second spring in many industrial countries. As a carbon-free source of energy it seems a good alternative to fossil fuels, which are considered key drivers of climate change. Many countries that have been shying away from nuclear after Chernobyl or the Harrisburg incident in the US are now reconsidering their options. Finland has just built some new reactors, Obama has issued fresh permits for uranium mining in Colorado, even Germany (which ruled it out 10 years ago) is prolonging the life-cycles of its existing plants – just to name a few examples.

While many experts in environmental politics considered the debate on nuclear power dead by the beginning of the last decade, it is amazing to see that it has come back. The disaster unfolding as we speak in Japan elucidates exactly why a rational discourse on nuclear power is so difficult.

The main threats of this technology are consequences which are mostly uncertain or even unknown. In other words, these ‘risks’ – apart from a few accidents we have seen – entail consequences which humans normally will find difficult to imagine, much less to calculate. The speculations on TV by ‘experts’ about what happens to Japan in case this really turns bad clearly demonstrates this. While the probability of nuclear incidents historically has been very low, the potential impact is without boundaries. Geographical boundaries, but also temporal ones: how long will people suffer from the fallouts we have already seen this weekend? Not to think about the worst case scenario...

Nuclear risks are unique. Their probability – from all we know – is rather low and since we have so few incidents, they are hardly calculable (unlike your car insurance, where we have ample data to establish probabilities). At the same time, the potential impact or damage of a nuclear accident tends toward infinity. Thus the normal way of assessing risks is rather difficult: a probability next to zero times a damage next to infinity – what exactly does this risk look like?

It is here where irrationality and ideology often fill a gap in the debate, as rational concepts fail to analyze the problem. This is exacerbated by the problem that nuclear risks are now ‘compared’ to the risks of global warming – which again is a risk that is difficult to calculate. Not much mathematical information exists on how likely the increase in temperature is. And even less information is available on how hard climate change will hit, where, when, who, and which parts of the world. So, finding trade-offs between nuclear risks and climate change risks is next to impossible – proving another characteristic of those modern risks: their ‘incommensurability’, meaning, it is impossible to ‘compare’ and weigh these risks against each other.

So what hope is there after this wake-up call about the fact that nuclear is not the silver bullet against climate change? We have to accept that climate change is real (even though we can say with little certainty how exactly it will hit us) and nuclear power is not a safe option either. We would argue that much more effort, resources and political will has to be directed toward alternative sources of energy: energy saving (by many accounts our largest resource), renewables, and lifestyle changes. If the disaster in Japan would trigger that debate there is at least a glimmer of hope coming out of this unfolding catastrophe.

Photo by IgnatiusJReillyEsq. Reproduced under Creative Commons Licence

Diversity in diversity management

You may remember that in one of our posts last month we asked what exactly made women different in a business ethics context. One of the big issues here is the "glass ceiling"that hinders women from getting to the top of the corporate ladder. Discrimination is often invisible but incontrovertible to those that encounter it.

To be sure, this is a problem faced by women everywhere, but at the same time, such institutional discrimination also varies quite significantly between countries. In our business ethics book, we reported on evidence of female held directorships in Europe - where female representation in the boardroom ranged from 0% in Portugal to 29% in Norway. So it was with some interest that we read in the Financial Times last week about evidence emerging of female board memberships in the Gulf region - an area not traditionally known as a leader in diversity management.

The picture painted by the report is of a region that, in terms of diversity management, demonstrates much like Europe quite a bit of, well ...diversity. Some Gulf countries are actually emerging as leaders in the region, with women making up 2.7 per cent of boards in Kuwait, and 3% in Oman. This not only compares favourably to other Gulf states, such as Abu Dhabi (0.6%) and Saudi Arabia (0.1%), but also stacks up pretty well against other ostensibly less conservative countries such as Italy (2%) and Japan (0.4%).

Of course, board memberships do not tell the whole story about gender discrimination in business, but it certainly gives a good flavour of the types of challenges facing women looking to secure advancement to the executive suite. So it's good to see some progress being made in the Gulf, and hopefully will act as a further spur for laggard countries in Europe and elsewhere. Who knows, perhaps even Italy's womanizing PM, Silvio Berlusconi will be able to prompt a greater attention to gender among Italy's boardrooms, especially having appointed the former model and (as the media puts it "ex-showgirl") Mara Carfagna, as Equal Opportunities Minister (pictured right).

But whatever progress is made in Italy or Kuwait, though, such countries will still remain far, far behind the leaders in female board membership. Right now, the place to go for high flying women is Norway, where women now make up 40% of board positions. But we're not talking voluntary social responsibility here; Norway's female friendly pattern is a result of good old fashioned regulation. As the International Herald Tribune reported a couple of months ago, it's not been a easy transition for Norway, but with appropriate mentoring, training schemes, support mechanisms and enforcement, a genuine change in attitudes seems to have accompanied the 2003 law that forced Norwegian companies to fill 40% of board seats with women. Such positive discrimination isn't always popular, but as the chart from the IHT shows, it certainly makes a difference.