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

Avatar – or the perils of stakeholder dialogue

Let’s admit it, Crane and Matten so far haven’t ventured too far into the Science Fiction genre in the movies they picked for the book and their classes. This might change though now with James Cameron’s (the guy who made ‘Titanic’) latest movie ‘Avatar’.

Before we go on, it’s fair to say that it takes the (nerdy?) eyes of a business ethics professor to see all sorts of things in this piece of celluloid which we don’t think has been the prime intention of its creators. In the main, this film (watch it in an IMAX, if at all possible) is a wonderful visual experience, with beautiful 3D-shots of fantastic landscapes, fairytale animals and a really stunning screenplay. No wonder then the film has netted US$1.3bn in the first two weeks at the box office and is already the second highest box office hit in history. It is 225 minutes of forgetting everything and just being swept away in a dream-world – what a fun it would be to ride these magic birds and fly through a universe of translucent flowers, bewitched trees and flying islands of jungle landscape…

This said then there are a number of things worth commenting on from a business ethics perspective. First and foremost, the human invaders of the planet ‘Pandora’, where those native ‘Nav’is’ are living is no one less than an evil mining corporation in its pursuit of the precious, energy yielding mineral ‘Unobtainium’. Unfortunately, the mineral is buried beneath the monstrous tree which is the main living space of the Nav’i tribe. This is funny in itself. No longer governments or galaxies are clashing here – no, it’s a private corporation, helped by a monstrously armored crowd of private security contractors.

But the scientists of the corporation have devised means to communicate with the aliens: they have developed a machine which allows some humans to assume the body of the aliens and enter their territory with the mission of convincing the natives to leave their living space. As things go however, the main hero of the film, after entering the world of the Nav’i, gets to like them just a bit too much, falls in love with one her warrior princesses and ultimately changes sides. In some ways one could say, a botched approach to stakeholder dialogue.

Now this has happened before. Quite a number of CSR activists, NGO leaders and other antagonists of global capitalism had their initial career in business and changed through exposure to its impacts on the environment, indigenous populations etc. It also shows that approaches to stakeholders which just intend some manipulation of those groups, are ultimately doomed to fail. And that’s where the movie goes on to, until the final battle sets the humans back and sends them to where they had come from.

Don’t get us wrong; none of this we think is what the film is really about. And that’s ultimately a weak point of the movie – in our view. The story is just too full of distracting details. That includes the somewhat awkward love story, the references to imperialism, the Iraq war, global terrorism, opaque religious symbolism, or the general anti-technology message – in a film, no less, which delivers this message through the most advantaged technology which cost some $250m to produce.

So its mostly fun to watch, and entertaining is what the film does really well. Or, as David Denby put it in The New Yorker: “The movie’s story might be a little trite, and the big battle at the end between ugly mechanical force and the gorgeous natural world goes on forever, but what a show Cameron puts on!”

Mining is bad! Or is it…

This last Saturday, there was the annual ‘Business and Human Rights’ conference of Amnesty International in Toronto. It was an inspiring event. The turnout of 150 activists and interested citizens was quite amazing (given it was a Saturday, with piles of snow and freezing temperatures in Toronto…) and was vivid proof of business ethics issues being at the core of what ‘normal people’ worried about this day and age.

The day focused on the mining industry, one of the strongest part of the Canadian economy. Canada has the biggest number of mining companies in the world most of which are active in developing countries. Amnesty International (AI) is in no short supply to provide examples of blatant environmental disasters and human rights abuses committed by these So it came to no surprise that our panel, next to a Schulich professor, featured an activist from a Canadian group, Mining Watch, and Ulises García from Peru whose father was assassinated six years ago while leading a campaign against a project by the Canadian mining multinational Manhattan Minerals Inc. (check out his movie 'Tambogrande - Mangos Murder Mining').

In a situation like this it becomes overly obvious that there are no easy answers to most business ethics questions. The activist’s presentations left little doubt that the ethical record of the mining industry is pretty dismal. It appears, that most of the commodities extracted within the last decades from, in this case, Latin America have been dug out largely without any concern for the environment, property rights, health, economic development and safety of local communities. So, the diagnosis was pretty clear, but what were the solutions presented?

The predominant feeling in the room appeared to be that mining is intrinsically bad and should be stopped – period. However, to call for this sitting in a spanking new and shining conference centre in Canada most of which is in some way or the other a result of mining is somewhat, say, daring. It is certainly elitist, given the fact that most of the living standard of countries in the Global North is based on mining in some way or the other. Refraining from mining then would not only be somewhat impractical but would also deny any economic development to the Global South, where mining often is the only potential source of income for local communities.

Ulises’ suggestion was to allow mining only if the mines are wholly owned by the workers. As brilliant as it sounds, this is ridden with problems as well. After all, mining is high tech business and – loathe it or hate it – multinational mining companies are the only ones who have that technology. This became overly clear in the context of the newly elected Bolivian president attempting at expropriating western oil multinationals a couple of months ago. So corporations – as in many other areas such as pharmaceutical research or environmental technology, have a role to play.

But which one? Here comes the point where you always feel a bit flaky as a business ethicist. In a complex, globalized world there are no easy solutions! For starters, NGOs like Amnesty and others are vital in drawing attention to what corporations do and to put them under pressure. Without this pressure, nothing will move and we need more of it. It is encouraging to see how multifaceted their approach is – from direct action, over shareholder activism up to global education and campaign initiatives: there is an entire arsenal of approaches to address these issues. We also need more aware and socially conscious managers; many of these corporate decisions are taken at office desks in the Global North without any awareness of the ethical, social and environmental impacts on the ground.

But we also still need strong and accountable governments. It is frustrating to see how little, for instance, the Canadian government seems to care about regulating and holding to account their domestic companies. It is very unlikely that these companies will leave Canada if the government stepped up its regulation – the more it is incomprehensible why the government acquiesces in this situation. And there need to be more pressure on host country governments, as many of these ethical problems often occur because local governments are corrupt and disregard the interests of their people.

There are many more things which could be done. Why dont you tell us your ideas on this issue!