Top 10 corporate responsibility stories of 2013

Plus ça change in corporate responsibility. If nothing else, 2013 provided ample evidence that, contrary to popular belief, corporate responsibility issues, even the huge stories that dominate the media, do not exactly come out of nowhere. So many of the top CR stories of the year, like the Rana Plaza disaster, Apple's tax problems, and JP Morgan's huge fine, were already prefaced by the big stories of the previous year. Among our top 10 of 2012 were a Bangladesh factory fire, corporate tax avoidance, criticism of tech companies, and prosecutions in the financial sector. So the writing was already on the wall for most of the big stories of 2013. It would appear, as Ethical Corporation editor Toby Webb said recently, that with all the excitement about new opportunities and win-wins, companies are underestimating the importance of sound ethical risk management in the corporate responsibility equation. So, if you want to know what CR risks lie ahead for 2014, you could do worse than checking through our list of the big stories of 2013.

1. Rana Plaza building collapse
Back in April 2013, more than 1100 people, mostly garment workers, died when the Rana Plaza building collapsed near Dhaka in Bangladesh. It was probably the single worst garment factory disaster yet, in an industry that has suffered more than its fair share of needless fatalities. But Bangladesh had already seen a series of major industrial accidents leading up to Rana Plaza, which had been met with little tangible response from business and government leaders. Rana Plaza looks to have at last changed that. The Accord on Fire and Building Safety in Bangladesh, signed by nearly 100 global retailers, as well as labour unions and NGOs is a legally binding agreement to ensure worker safety through independent factory inspections, mandatory repairs, financial support, and sanctions for noncompliance. More than 2m vulnerable Bangladeshi garment workers are already covered by the Accord. A competing agreement, signed by Walmart, Gap, Target and other North American companies was criticized for having weaker enforcement and failing to involve labor unions. Nonetheless, both pacts are evidence that factory safety in Bangladesh is finally getting the concerted attention it deserves.

2. Apple's tax avoidance
Corporate tax avoidance had been a growing story in the UK and elsewhere prior to 2013, as evidenced by our top stories listing of 2012. But the issue exploded onto the public consciousness when Apple's CEO Tim Cook was forced to testify to a Senate committee in Washington back in May of this year. The company had avoided paying literally billions of dollars in tax by exploiting various loopholes in international tax treaties and funnelling its European profits through a shell company in Ireland. All completely legal, of course, but hardly what the public expects of a good corporate citizen. Now that attention to corporate tax avoidance has gone global, and with inequality and government debt the two biggest global risks today, the obvious questions are which country will be next in taking aim and which company will be in the firing line? Corporate tax reform is also undoubtedly going to loom even larger in the coming year.

3. NSA spying
Without doubt, Edward Snowden's whistleblowing on the US National Security Agency's (NSA) mass surveillance programs was the story of 2013. Nothing else even got close. However, the corporate responsibility dimensions still remain somewhat murky, which is why it doesn't quite make it to the top of our list. We do know, however, that telecoms companies like Verizon are required to hand over all call records  (or "metadata") to the NSA about cell phone calls made in the US. We also know that none of these companies ever sought to challenge the legality of the action. Another revelation was that the secret PRISM spying program allows the NSA to tap into the servers of internet companies like Google and Microsoft to access customer data. We also know that NSA pays millions of dollars to these same companies. We do not yet know exactly how complicit tech companies have been in the whole mess but one thing for sure is that they now realize that the NSA spying story is undermining their customers' trust and are calling for government reform. Expect much more to come in 2014.

4. JP Morgan's $13bn misconduct settlement
Our annual list of major corporate responsibility stories would not be complete without an entry from the finance industry. As we predicted at the beginning of the year, 2013 was marked by the return of government and some major financial sector scalps. None of these was bigger than the whopping $13bn fine landed on JP Morgan for misleading investors in the same of mortgage backed securities in the lead-up to the financial crisis. To date, it is the settlement ever between the US government and a corporation, and will come as some (though probably not enough) relief to those who have viewed most of the finance sector giants as getting away with the crisis relatively unscathed. On the other hand, JP Morgan is probably pretty sore about catching the flack for misconduct that was less about their own practices and more down to firms like Bear Stearns that they were encouraged by the US government to acquire at the height of the meltdown. No one comes out of this looking good.

5. Europe's horse meat scandal
At the beginning of the year, the big news was all about horse meat turning up in products it wasn't supposed to be in. Like those clearly labelled as "beef". The scandal started in the UK, quickly spread to a suspect supplier in Ireland, and soon rocked much of Europe. Customer trust rapidly evaporated as it became clear that effective oversight of the food industry was sorely lacking. Companies acted quickly to withdraw potentially contaminated products and shore up confidence but further revelations of large scale criminal activity in the food supply chain will do little to restore trust in a thoroughly compromised industry.

6. India's new CSR law
The world's largest democracy now has the world's most extensive CSR legislation. But that is not necessarily a good thing. Under the new Companies Act, passed by the Indian Parliament in August 2013, large Indian companies must spend at least 2 per cent of their net profits on CSR each year from 2014 onwards. It also requires firms to set up a CSR board committee and institute a CSR policy. The new CSR legislation has met with a mixed reaction, especially as it seems to institutionalize a somewhat backward looking approach to CSR which emphasizes philanthropic giving whilst ignoring the core strategic business of the firm. It will also be incredibly hard to enforce in a country already hamstrung by an overburdened legal system. On the plus side, the legislation does force many of India's laggard companies to finally take some responsibility for the various social problems faced by the country's citizens. For better or worse, CSR is no longer something that can be ignored in India.

7. Chevron's Ecuador pollution case
It has been a big year for Chevron and Ecuador in their long-running, aggressively-fought pollution case. In November, the Ecuadorean high court made its long-awaited appeal decision which upheld the original 2011 judgement requiring Chevron to pay $9bn to compensate for contaminating the rainforest during crude oil extraction over two decades ago. Chevron has never operated in Ecuador but inherited the lawsuit and its toxic legacy when it took over Texaco, the original operator, in 2001. For its part Chevron continues to dispute the legality of the ruling and has refused to pay. The appeal was at least partially successful for Chevron by halving the original $18bn damages bill, but not in overturning the decision. Chevron is now awaiting the outcome of a counter-suit heard last month in the US against the plaintiff's main lawyer, who the company claims engaged in bribery and fraud to secure the conviction. Meanwhile, attempts by the plaintiffs to seize Chevron's assets overseas to pay the fine also had their ups and downs in 2013. For example, Canada first denied them the rights of enforcement in May, only for a judge to overturn the decision on appeal in December. Other actions are underway in Brazil and Argentina. This has fast turned into a test not only of the Ecuadorean legal system, but of the global legal system's appetite to prosecute international legacy corporate responsibility issues.

8. Rosia Montana mining protests 
2013 saw major protests against mining operations all over the world, including Australia, Canada, Columbia, Greece, Niger, Peru, even Tibet. But the biggest of the lot was probably in Romania, which saw a mass protest movement arise in response to plans to mine around the town of Rosia Montana. If approved, it would be Europe's largest gold mine but critics claim that it would inflict untold social, environmental and cultural damage. Mass street protests erupted after the government proposed a new law that would enable the Rosia Montana Gold Corporation (majority owned by the Canadian mining company Gabriel Resources) to finally start operations after years of failing to acquire the necessary environmental permits. At stake here then is not just the proposed mine but the legitimacy of the democratic process, which protesters feel has been fatally undermined by the hastily forced through legislation. As one protester put it: "People today confront a corrupted political class backed up by a corporation and a sold out media; and they ask for an improved democratic process, for adding a participatory democracy dimension to traditional democratic mechanisms."

 9. New UN Global Compact 100 Index
There were several entrants to the new corporate responsibility standards and guidelines category in 2013, with the G4 guidelines of the Global Reporting Initiative probably being the most talked about. But September's launch of the Global Compact's new stock market index, the Global Compact 100, for us represented the most significant development. First, as John Entine noted, it offered a welcome new development in a social investing field "hungry for innovation and dogged by ideological correctness". But more than that it showed just how far the UN was willing to push the needle on its voluntary approach to corporate responsibility that heavily prioritizes incentives rather than enforcement. While many are still criticizing the Global Compact for not having sharp enough teeth to weed out laggards and green washers, the new index makes it abundantly clear that the UNGC is moving in a very different direction. Ten years ago it would still have been unthinkable, but the reality is that the UN is no longer just in the business of accords, declarations, and principles but is now also firmly in the finance industry.

10. South Korea's nuclear corruption scandal
GSK's corruption scandal in China may have got most of the headlines, but in our book, the corruption scandal that has engulfed South Korea's nuclear industry this year tops it for potential impact. Two short years after Japan's Fukishima disaster, neighbouring South Korea is also facing a devastating loss of confidence in its nuclear industry which supplies about a third of the country's energy needs. The scandal has centred on a swathe of faked safety certificates that have been issued for critical nuclear reactor parts over the years, and the bribes that have allegedly been paid to look the other way. Most commentators pin the blame on the closed structure of the nuclear industry in South Korea with only a single national operator and close ties between the operator, suppliers and testing companies. The prime minister has likened the industry to the mafia. A number of reactors have been shut down, trust in the industry has plummeted, a national energy shortage is underway, and now some 100 officials have been indicted for their part in the scandal. Corruption that compromises the safety of the nuclear industry is probably about as bad as it gets. And its unclear yet whether South Korea can really turn this one around.

Photo by rijans. Reproduced under Creative Commons licence

Minefields and Mining

What a couple days we had! First a Royal Wedding watched by half of the Globe. Then Obama’s capture of Osama. And finally, for us here in Canada, an election with a scary winner.

Welcome to the world of ambiguity. Wills & Kate look like a nice couple and less fake than most of what has been on display by the British Royals in the last decades. But all this pomp, glitter and archaic ceremony? It’s 2011,folks, wake up! But we still preferred the ecstatic crowds Friday a week ago in London to those in Washington last week Sunday night. A middle-ages inquisition ceremony could not have been jollier - or should we say - barbaric. Osama bin Laden? Certainly a person that has some things to answer for. But do we buy Obama’s ‘brought to justice’ rhetoric? After all, according to many Bin Laden and his movement was largely an American creation in the first place. And then the Canadian election: the Bonsai-George-Double-U Stephen Harper has now a solid majority. He will ‘Americanize’ the country further until it can just apply for becoming the 51st state of those ‘South of the Border’. The same election though gave us also the victory of the centre-left NDP winning the biggest number of seats in history. A bit of pyrrhic victory though.

All in all a minefield for the ethicist. Which provides some space to talk about – why not – mining. In fact that industry has taken our attention here in our School in Toronto over the last couple of months. As it turns out, Schulich will launch later this year a specialization in ‘Mining and Minerals’ on the MBA program. A core topic for this new program in fact will be the social responsibilities and ethics of mining.

Now, that’s a minefield in itself. Our school prides itself on being the leading school in the world in integrating environmental and social issues into business education. How does this go together with getting into bed with the mining industry? An industry which has a fairly dubious legacy with regard to ethics and social responsibility as the main focus of a school focusing exactly on these issues? There was some debate among faculty about this.

For us, this question gave rise to some thinking, too. As academics, we can stay, as one of our colleagues sometimes put it, ‘small and clean’ – or one can get out there, engage with issues, actors and industries which are of big importance and get the hands a little bit dirty. For the time being, the latter approach seems to be more intriguing and rewarding. In the sense that our research and teaching might in fact have an impact on the real world.

Of course a closer engagement with mining surfaces the rather complex nature of the industry. On a recent visit to some goldmines in Turkey we were able to witness these issues from closer up. We visited the area around Canakkale, 3 hours southwest of Istanbul, where currently some substantial explorations in gold mining are taking place. On the one hand, mining can in fact have substantial positive impacts on economic and social development of communities. This of course assumes that mining companies (in this case Australian and Canadian firms) share employment, infrastructure and profits with local communities. The effect can be rather substantial as often mines are located in otherwise not very developed regions. On the other hand, the disruption of the environment and the pollution around mining operations are huge.

The push for responsible mining, as we witnessed on site, is challenged by a number of characteristics of the industry. First, mining in the early, exploratory stages is still pretty much a gamble. Hundreds of millions investment is needed before even the first drop of oil or the first ounce of gold can be mined. This puts a rather tight budget and intense investor scrutiny on the companies and will make extensive voluntary expenses on environmental or other social responsibility issues rather difficult to justify. Second, unlike the big mining MNCs such as Rio Tinto, Glencore or AngloAmerican, the majority of companies are rather small, especially in the early stages of mining. They often simply lack the resources, often also the awareness of managers who mostly have science/engineering backgrounds with little understanding of wider social impacts of mining. Third, and finally, mining predominantly takes place in contexts of rather poor governance and regulation where the immediate pressure on companies to avoid harm to the environment and local communities is rather weak.

This is certainly an educational challenge. One executive we spoke to mentioned, just as an example of the dimensions of social responsibility, that the manager of a large mining project he was involved in in Papua New Guinea is now more or less in charge of half of the GDP of this country. This entails responsibilities beyond just the immediate profitable management of the extracting operations (which is a 24/7 job to begin with). Those managers inevitably assume – whether they know it or not – wider responsibilities for economic, social and environmental development and welfare of a country. We consider this a stark challenge – in education, research and engagement with the industry and their many critics in civil society. We might talk more about mining in this space!

What’s wrong with Canada?

For a long time Canada – certainly in the rest of the world – had this image of a very progressive, liberal and forward looking country in terms of social and environmental responsibilities of business. This not only applies to business leaders which from an early time on championed these ideas. To mind comes Maurice Strong and his engagement for various UN led environmental initiatives in the 1970s. Or Chuck Hantho who, while CEO of what is now ICI Canada, initiated the ‘Responsible Care’ program in Canada which subsequently was adopted by the global association of the chemical industry and is now a standard for the industry in 53 countries globally. Not to forget David McTaggart, the Canadian businessman who became one of the founders and early leaders of Greenpeace. Also notable are wider initiatives such as the Montreal Protocol or, more generally, the courageous stance for human rights and integrity in the world, symbolized by ‘the last man standing in Ruanda’, Canadian General Romeo Dallaire on the UN mission when the Genocide began to unfold in the Central African country.

This all sounds like long ago now. The month of November was not a good month for Canadians with an interest in social responsibility of business. First, we saw Bill C-300 voted down by the Canadian parliament – a bill which attempted at raising the standards of environmental and social responsibilities of Canadian mining companies abroad. We might quibble about details of the bill. But it is pretty undisputable that the Canadian mining industry as a whole has a pretty dismal reputation around the world. What is conspicuous is that Canadian politicians do not even see some attempts at ‘symbolic politics’ – which the bill would have been by and large – as necessary. It makes you wonder.

Then, later in November, it was a – by all standards rather modest – attempt at addressing Canada’s more than wanting approach to climate change, which was voted down in the Senate (Canada’s second chamber of parliament). Bill C-311 was a modest attempt to close the gap between the Kyoto targets and the current performance of the country, ahead of a next round of negotiations in Cancun this month.

Of course it does not help to be governed by a party whose power base and current Prime Minster is from the province of Alberta which thrives on one of the most questionable mining operations in the world: the oil sands. But it cannot be all just old-style business interest driven political manoeuvring. This blog is triggered by reports about the work of Vancouver based consultant Patrick Moore for Asian Pulp and Paper (APP) basically legitimating the environmental record of a company that is allegedly responsible for the most rampant deforestation in Indonesia. The delicate detail – which seems to look symbolic for the country: Moore once was a director and spokesperson for Greenpeace.

All this is even more interesting as Canadians generally pride themselves on being so much more sophisticated, civilized and socially literate than their relatives ‘South of the border’. Looking, however, at the track record on the ground, the mood of the country has largely assimilated to that of their Southern neighbours. And were it not for the last bastion of Canadian’s pride in their social edge – the public health system - the Country’s practices make it look in many ways like the 51st state...

Photo by 416style reproduced under the Creative Commons Licence.