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

Cleaning up the "ethical oil" mess

With Stephen Harper's government getting plenty of heat at the Durban climate conference over its decision to relegate Kyoto to the history books,  there is a lot of discussion back home about the merits or otherwise of presenting the Canadian oil sands as "ethical oil". It's something we discussed in the blog earlier in the year, but the XL pipeline decision process has kept the issue very much on the front burner. Factor in a controversial TV spot by Ethicaloil.org comparing so-called "ethical" Canadian oil to "conflict" oil sourced from Saudi Arabia that funds oppression of women, and its no surprise to wind up in a heated debate

Yesterday, CBC, Canada's national broadcaster, featured a segment on ethical oil in its popular morning radio show The Current, and we were happy to be invited to participate, along with Kathryn Marshall, the spokesperson for Ethicaloil.org and Jody Williams, a Nobel Peace Prize winner, who has publicly come out against the tar sands.  You can hear the lively discussion, led by the impressive host Anna Maria Tremonti on the CBC website.

A colleague of ours in the law school here at York University, Stepan Wood, has blogged about the show and takes the time to expand upon some critical points that there was hardly even enough time to raise in the conversation itself. As he says:

"For one thing,[ethical oil's] narrow focus on human rights and the rule of law distracts attention from the massive environmental damage and energy consumption involved in extraction and processing of tar sands oil. For another, the claim that tar sands operations fully respect human rights is debatable, with numerous First Nations claiming that these operations impair their rights to clean water and a healthful environment. It is also hard to miss the xenophobic undertones of the Ethical Oil message–it is no coincidence that most of the countries targeted by the campaign are ethnically, culturally or religiously distinct from the white Canadian majority"

The bottom line, in which we and Stepan agree, is that Canada is very much not a leader when it comes to handling its responsibilities around oil extraction:

"To be a real leader Canada would have to show that it is genuinely committed to progress toward a post-carbon economy and improvement of the human rights records of Canadian companies overseas. This would include holding Canadian oil companies to the same high standards wherever they do business in the world. It is disingenuous to say that oil companies in Canada are ethical leaders if those very same companies are busily pumping oil and propping up those same repressive foreign regimes that the Ethical Oil campaign vilifies."

We don't expect that to happen any time soon, and in fact Canada has been content to be relegated very much to the margins of the Durban conference. When even China is criticizing you for setting a bad example, any claims that the country is a leader in providing "ethical oil" are only likely to fall on deaf ears.

Graphic by jfeathersmith. Reproduced under Creative Commons Licence

Can the Canadian oil sands really be an 'ethical' source of energy?

The new year has got off to a bang in Canada with the new Environment Minister Peter Kent coming out of his corner fighting. According to Kent, the Albertan oil sands are not the environmental catastrophe we all thought they were. In fact, as he says, the oil sands are "an ethical source of energy". Yes, that's right. Alberta is the new home of ethical oil.  Oh boy, that's going to need some explaining.

Now, before you slam your head into the computer screen in disbelief, let's take a closer look at this claim and put it in a little bit of context. Kent's basic point is that because the oil sands are in Canada, they are properly and democratically regulated, they do not fall foul of corruption and abuses common in oil rich countries - and the proceeds don't go into funding terrorism. Compare that to the other states in the top 10 countries by proven oil reserves and you can see that he might have a point. Saudi Arabia, Iran, Iraq, Kuwait, Venezuela, UAE, Russia, Libya, and Nigeria - hardly a list of ethical hotspots it has to be said. As Kent puts it, "[Oil sands oil] is a regulated product in an energy superpower democracy... The profits from this oil are not used in undemocratic or unethical ways. The proceeds are used to better society in the great Canadian democracy."

OK, so let's not get into a debate about just how "great" the Canadian democracy is. After all this is a country that, under the current Government, has regularly taken to shutting down Parliament when things get a bit dicey. But against the rest of the countries with big oil reserves, it still comes up looking pretty good by comparison. This is important for potential buyers of oil sands oil, especially the US which is concerned with global energy security, and is looking to wean itself off its dependence on oil imports from countries that it would rather not have to go to war with again. In fact, Kent's ethical makeover of the oil sands is all part of the major charm offensive that the Canadian government is pursuing to bolster its reputation in the US and elsewhere where climate concerns have started making Canadian oil distinctly unpopular in recent years.

In this context Kent is right to promote some of the virtues of the oil sands. All energy sources have their positives and negatives - yet the oil sands has become chiefly known only for its social and environmental downside. So a bit of rebalancing of the ethical equation is not inappropriate. But claiming any source of non-renewable energy is "ethical" and especially one that is fraught with such problems as oil sands oil, is not too helpful in advancing the debate in a meaningful way. Such claims may get media attention but they also infuriate critics and simply serve to entrench existing antagonisms. Climate activists are likely to target the oil sands even harder now that the Canadian government is drawing out the battle lines in this way. Greenpeace Canada for example had already started campaigning on a 'Separate oil from state' platform including an anonymous leak site for inside tip-offs about government efforts to promote the oil sands. This is all part of a concerted NGO response to what  the Climate Action Network regards as, "federal officials ... systematically trying to kill clean energy and climate change policies in other countries in order to promote the interests of oil companies."

Far better it would have been then for Kent to acknowledge the shortcomings of the oil sands along with proclaiming their virtues. Any freshman ethics student knows that a utilitarian cost-benefit analysis of the ethics of different energy sources has to take into account more than just one factor. Country of origin is just one of a whole range of relevant issues. There is no way that the tar sands can be regarded as an ethical source of oil based on one factor alone. But country of origin "benefits" can be traded off with climate change "costs" if you subscribe to a utilitarian mode of thinking. However, a myopic, one-sided piece of government propaganda doesn't help anyone ... especially when it is proclaiming the virtues of "the great Canadian democracy".

Photo copyright Greenpeace.