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

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.

Shooting straight at Target?

Target, the American discount retail giant that has for years been trying to claw market share from its mammoth rival Wal-Mart, was generally regarded as a more socially responsible alterntive to its big box competitor. That started to change with Wal-Mart's sustainability u-turn a few years ago, prompting Fast Company magazine to recently proclaim Walmart the winner in the "sustainability face-off" between the two companies.

One area of social responsibility where Target has continued to outpunch its rival though has been in diversity and human rights. For example, Target scored a maximum 100 points in the most recent Corporate Equality Index published by Human Rights Campaign, the largest national lesbian, gay, bisexual and transgender (LGBT) civil rights organization in the US. Among other things, Target extends its employee's health care coverage to same-sex partners. Wal-Mart, by comparison, until recently provided coverage to less than half of its own employees never mind their partners. It scored just 40 on the Index.

However, in the last two months, Target's carefully nurtured diversity reputation has begun to unravel. It is now in the midst of a boycott from LGBT customers, appears to have seriously angered many of its once loyal employees, and has even had the social media campaign for the launch of its fall clothing line derailed.

The cause? A relatively innoculous looking $150,000 campaign donation in the upcoming 2010 Minnesota Governor's Race. Target made the donation to MN Forward, a political action commitee which describes itself as "established to ensure that private-sector job creation and economic growth are at the top of the agenda during the 2010 campaign" . The group works to solicit campaign donations from  "Minnesota job creators to elect candidates from both parties who support policies that enhance job growth".

So far, so uncontroversial. Target is among a number of Minnesota-based companies contributing to MN Forward, with a view to backing candidates making job creation and support for business a priority. The group is putting its corporate money behind the Republican candidate Tom Emmer in the Governor's race. And they make no bones about why: "As a legislator, Tom Emmer voted against job-killing taxes and for reduced government spending. Emmer voted with the Minnesota Chamber of Commerce 91% of the time". You can't get much more pro-business than that. So it's hardly very surprising that Target is willing to cough up a few readies to get their man in poll position. So where's the rub?

The problem is Emmer isn't just about supporting business. He's also about supporting marriage. Traditional marriage. As in, not gay marriage. All of the other candidates are in support of legalizing same-sex marriage in the state, but Emmer has been a staunch opponent of LGBT marriage rights. As he says on his campaign website: "I believe marriage is the union between one man and one woman. As a legislator, I have consistently supported the constitutional marriage amendment that protects traditional marriage.”

There's more, as the Minnesota Independent newspaper documents well:

"In 2007, Emmer authored a constitutional amendment to prohibit same-sex marriage and civil unions. In many instances, Emmer has tried to change language in bills to that same-sex couples cannot benefit. In a bill to create standards around surrogate motherhood, Emmer attempted to replace the word “parents” with the words “mother and father.” In a wrongful death bill this session, Emmer questioned the use of the term “domestic partner” just as he has in bills aimed at providing benefits for same-sex partners. Emmer has also been criticized for his association with Christian hard rock ministry, You Can Run But You Cannot Hide Intl., Inc., which has made incendiary statements about the morality of imprisoning and executing homosexuals. Emmer’s campaign had purchased table space at the group’s fundraiser and visited with the group on the radio and in person."

Ah. So, not exactly a poster boy for Target's diversity policies then. The company, a regular supporter of the local gay pride festival, is more used to being recognized for its leadership on LGBT issues. So given this kind of backstory it is perhaps no surprise that the company's campaign donation has ignited a bit of a storm. Gay rights organizations have been up in arms, various facebook campaigns have been started, and protests have been held outside of the firm's stores. Boycott plans and employee unrest have followed.

Initially, Target was unrepentant. The CEO's response to staff was an email largely dismissing the problem. In the mail, he wrote: "We rarely endorse all advocated positions of the organizations or candidates we support, and we do not have a political or social agenda. As you know, Target has a history of supporting organizations and candidates, on both sides of the aisle, who seek to advance policies aligned with our business objectives, such as job creation and economic growth...Let me be very clear, Target's support of the GLBT community is unwavering, and inclusiveness remains a core value of our company."

However, fearing an escalation of the storm, earlier this month Target's CEO issued an apology letter to employees, remarking that "while I firmly believe that a business climate conducive to growth is critical to our future, I realize our decision affected many of you in a way I did not anticipate, and for that I am genuinely sorry." This seemed to stem the tide of protest, but the story has yet to go away for the troubled retailer. Last week, the Human Rights Campaign (yes, the group that gave Target the 100/100 score for their equality policies) announced that the company has refused to "make it right" to the LGBT community by retracting the donation or making a matching $150,000 donation to a gay rights organizaton. HRC said it would be making a $150,000 donation itself to elect a pro-equality governor.

We doubt ths will be the end of the story. But what can we learn from events so far? One clear conclusion is that the recent Citizens United ruling in the US that gives private corporations the right to fund political broadcasts during elections is not going to be a field of roses for companies. Whilst it may guarantee them free political speech, the question is will they necessarily want to use it given the dangers of upsetting their many and varied stakeholders? Big brand companies especially will probably want to be proceed with politics very carefully and not without due dilligence - as Target have found to their cost.

Secondly, companies will need to get smarter about how to engage in identity politics. It is no use saying "we don't have a political agenda" when you've invested in supporting minority or under-represented groups such as LGBTs, racial minoroties,or the handicapped. The decisions may be driven by business concerns but that doesn't mean that they don't have political ramifcations. And identity-based organizations know this and are ready to exploit companies' naivety. McDonald's have already been burnt on a simialr issue, as we reported a couple of months ago. And if you want to read more, we've recently written a couple of downloadable academic papers focusing on corporations and identity politics and how to bring identity afiliations into stakeholder identification.

The point is that companies are not yet very skilled at joined-up thinking across their span of operations when it comes to issues like gay rights - or any number of other issues that reflect people's complex and multi-faceted identities. Target is learning to thnk about LGBT issues not just in relation to human resources, but also in marketing, investor relations and government relations. Next it could be Muslims, Mexican immigrants or Mothers Against Drink Driving pointing out their inconsistencies. Or perhaps the American Family Association will start boycotting them now that they've heard about all that pro-gay stuff Target were doing. Then we'll really see if the company has a political agenda.

Keeping it in the Family? Family Firms, Business Ethics and Social Responsibility

In what we hope will be the first of many guest blogs from our extended family of co-authors and colleagues, here's a post from Laura Spence, the co-author of our CSR textbook, about her recent foray into the ethics of (aptly enough) family firms...

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When I mentioned to a friend that I was going to a conference on Business Ethics and Family Business, he looked askance and said “you’ve seen Dallas, that’s all you need to know, isn’t it?” I had been invited to attend the Family Enterprise Research Conference in Winnipeg, Manitoba in Canada (24-25 April, 2009) because of my involvement in a potential journal special issue on this topic, and rather hoped that there was somewhat more to it than the ruthless pursuit of profit and filial jealousy. Happily this turns out to be the case.

I have long lobbied Crane and Matten - not to mention most of the rest of the business ethics /CSR community - about the need to incorporate small and medium sized enterprises (SMEs) in our research. Finally, I think, we are getting somewhere in that respect, but family business, to date, has remained firmly under the radar. As with SMEs, if it were just about the numbers this wouldn’t be the case. SMEs generally comprise over 90% of an economy’s private enterprises (and that includes both developed and developing countries). Family firms, I have learned, are just as important, and of course include large Multinational Enterprises as well as small businesses. The study of family firms is far from being just about the little guys - globally familiar names that are family firms include Kikkoman Soy Sauce, SC Johnson, Ford, Lego, Aldi, Levi Strauss, Estee Lauder, Marriott and Wal-Mart. This list of example organisations alone has a wide range of reputations as far as ethics goes, so there is no intuitive indication of the influence of being a family firm on business ethics. However, these large firms are light years from the common small family business in many respects – maybe it isn’t fair to bundle them all together when the institutional arrangements are potentially so different, if only in terms of the proportion of employees who are family members.

This brings us to one of the basic starting points when understanding what we mean by a ‘family firm’; definition of the key characteristics has been an important aspect of the literature since the field took off in earnest in the 1980s (at least that is when the first dedicated journal on the subject was launched; Family Business Review). A review of definitions has been offered by Chua, Chrisman and Sharma (1999. Previous definitions, they argue, revolve around combinations of family ownership and family management, with ownership being seen as the most important aspect to being defined as a family business. The authors propose that: “The family business is a business governed and/or managed with the intention to shape and pursue the vision of the business held by a dominant coalition controlled by members of the same family or a small number of families in a manner that is potentially sustainable across generations of the family or families.” (p.25).

So where does this leave our expectations of the ethics of the family firm? At the conference, the prevailing assumption was that the family firm, because of a presumed long-term perspective, embedded community orientation and shared vision, would be more ethical and socially responsible than the non-family firm. This sounds great but a little idealistic. As things stand, the fact is we simply don’t know whether there is a clear causal relationship since there has been such very, very little relevant research either theoretical or empirical. Hopefully, the proposed special issue on family business, ethics, stakeholders and sustainability in Business Ethics Quarterly will go some way to revealing whether the ethically challenged oil-rich Ewing family from Dallas - or the virtuous lumber mill owning Waltons of Virginia - provide a good model to reflect on in this barely investigated aspect of business ethics and CSR.

Laura J. Spence, Director, Centre for Research into Sustainability, Royal Holloway, University of London, UK. www.rhul.ac.uk/management/cris

Time for multinationals to step up to the mark in Burma

The debate about the role of multinational corporations propping up Burma's oppressive regime has been a long and fractious one. It's something that we in have discussed in our business ethics book, and which has been widely documented elsewhere. But with the country suddenly in the midst of a huge natural disaster that has already claimed some 22,000 lives, now is clearly the time to go beyond debate and for any companies still doing business there to start rolling up their sleeves.

Many commentators have claimed that Wal-Mart's major ethical turning point came when it launched a massive aid operation in the face of the Hurricane Katrina disaster in 2005. So is Cyclone Nargis going to be the catalyst for any of the hundreds of multinations doing business with Burma to demonstrate some concrete proof that their business links can bring positive social benefits to the Burmese people? After all, the common argument used by companies involved in Burma is that they can benefit ordinary people more by investing there than divesting. So this is a real opportunity to finally show the world that this whole argument is more than just a lame excuse for profiting from human rights abuses.

The International Trade Union Confederation (ITUC) latest list of companies doing business with Burma includes Caterpillar (USA), China National Petroleum Corp. (CNPC), Daewoo International Corporation (Korea), Siemens (Germany), Gas Authority of India (GAIL), GlaxoSmithKline (UK), Hyundai (Korea), and Total (France). If anyone is going to be having a Wal-Mart moment in response to Cyclone Nargis, surely it should be one of these. For once, a bit of "disaster capitalism" could actually do some good.