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

Mitt is on the money

It is final now: Mitt Romney is the official presidential candidate of the Republican Party for 2012.  This is in itself a little miracle. To begin with, given the strength of Christian fundamentalists in the GOP – from Evangelicals to Catholics – it is still remarkable that a Mormon has finally made it to the top of the ticket. Given the history of Mormonism in the US and its longstanding antagonism from ‘mainstream’ Christian groups this is probably the clearest indicator of the magnitude of resentment towards Obama. To Tea Party fundamentalists, even an apostate is more acceptable than – I guess – a black person in the White House. Those two delegates who threw nuts at a black CNN camerawoman with the comment "this is how we feed the animals" are probably – despite the political correctness of the official reaction - just an indicator of the Republican Zeitgeist.

There is though another reason why this is even more interesting. After all, this is the first election where private corporations (or rich business owners through their companies) are able to basically fund the campaigns of their preferred candidates without any limits. We saw this clearly in the primaries, where candidates such as Herman Cain, Newt Gingrich or Rick Santorum were all able to stay in the race far beyond what their paltry successes in the primaries would traditionally suggest. It was ironic, that the Citizens United ruling by a Republican-leaning Supreme Court in 2010 reared its predictably ugly head first to the detriment of the Republican frontrunner Mitt Romney himself. Newt Gingrich was probably the best example: not only did his philandering past made him unpalatable for even the most ideological GOP supporters at the base, but also his success in the primaries was dismal –he could not even win his home state Georgia. He stayed in the race though because his ‘sugardaddy’ Sheldon Adelson poured limitless amounts of cash into his campaign. Adelson, the owner of a global Casino empire, is currently investigated for breach of the Foreign- and Corrupt Practices Act by the US Justice Authorities and has good reasons to make sure whoever ends up in the White House has some loyalties to him.

The Republican primaries have shown that rich individuals, after the Citizens United ruling, basically can buy elections. It will be exciting to watch how this will now impact the presidential campaigns in the fall in the US. Mind you, four years ago it was Obama who had the biggest coffers. And still today, if one just analyzes the funds of the actual campaigns of Obama and Romney, where donations are capped at $5,000, Obama is still leading Romney (according to a recent report in The New Yorker). However, what the Citizen United ruling has allowed is the creation of so called ‘Super PACs’ (as in political action committee), which can advertise on behalf and in the interest of a candidate and can accept unlimited amounts of donations.

The effect is fairly impressive. Already now, if we look at the Super PACs around both candidates, Romney with $120m in donations leads Obama by factor four. Adelson alone has pledged $100m to get rid of Obama and other rich republican donors such as the Koch brothers are willing to donate whatever it takes. Estimates suggest that Romney (and his entourage) by November may have been able to spent some mindboggling $1.2bn dollars!

The interesting thing here then is that for some reasons, the Obama campaign is not playing the same game. This not so much due to a lack of potential donors (according to the cited article); there are enough rich business people who are leaning towards the Democrats. It appears that Obama himself is not too keen on becoming too close and dependant from wealthy individuals and interests. Another factor appears also to be that some of the individuals who potentially could play the game of the Koch’s and Adelsons’ on the other side feel that this trend in politics is not desirable: “I don’t want to see democracy go in that direction”, Warren Buffett (a longstanding Obama supporter) is quoted in The New Yorker.

There are many people among the Democrats who are worried about this. After all, come fall it may well be possible that most advertising time on TV and radio has already been bought by Republican Super-PACs. And indeed, as we have frequently discussed here on this blog, the current situation in the US lifts the entire debate of corporate influence on the political process to a truly new level. There is now only a little and mostly cosmetic difference between how ‘third world’ dictators can buy elections and the way the sheer financial backing of a candidate and his capacity to spend on his campaign will decide the US Presidential election.

The Republican primaries though have left us with a glimmer of hope – albeit in a somewhat twisted way. After all, despite the corporate backers of several candidates, in the end the Republican base by persistently not voting, for instance for Gingrich, finally got to speak the last word. The assumption that money can buy an election then rests on a simple assumption: that the majority of the electorate, in fact: the few millions of swing voters in some ten states of the US who effectively have decided elections in the last decades are stupid enough to fall for a bombardment of advertising (for which most of the funds are used these days) and just succumb to these formidable means of manipulation. Or is it still also true, as the Republican base has shown, that voters still have some minimal set of convictions and the ability to see through all the veneer of a political campaign – and decide for themselves. One way or the other, these specific circumstances have added an ingredient to this presidential campaign which might actually make it a slightly more interesting spectacle to watch.

Artwork from DonkeyHotey, reproduced under the Creative Commons License.