The Volkswagen diesel deception - 5 key questions

News about Volkswagen's (VW) emerging emissions test rigging scandal makes one wonder if there is ever a story in business ethics too preposterous to be true. But it certainly raises some interesting and important questions about the nature of corporate responsibility that demand some pretty quick answers.

In some ways, it is not a complicated story, and even the CEO Martin Winterkorn today admitted to the firms culpability and apologized. "We totally screwed up" the carmaker's US chief was also reported as saying. So, VW deliberately manipulated the software that manages their diesel engines so that the emission data in test mode appeared significantly lower (up to 40%) than in reality. And this is not just pretending the cars are more fuel efficient than they really are. The EPA clearly states that the substances whose level of emissions were concealed:

"penetrate deeply into sensitive parts of the lungs and can cause or worsen respiratory disease, such as emphysema and bronchitis, and can aggravate existing heart disease, leading to increased hospital admissions and premature death."

That wording alone should strike considerable fear into VW board. The company might face criminal investigations and court proceedings that might even compare the tobacco industry or the financial sector's travails. Already the company could be faced with fines up to $18bn and a massive recall with 11m cars thought to be affected.

From the perspective of corporate responsibility then the fascinating time has just started - how on earth could that happen? Here are a few questions to consider over the next few days and weeks as the scandal unfolds.

1. Embedding corporate responsibility and sustainability

Volkswagen is one of the European companies that really seemed to embrace 'Sustainability and Responsibility' from quite early on - and much ahead of many of its German rivals who relied on the social responsibilities of business being part of the traditional tightly regulated, corporatist consensus governing the national economy. How is it possible that a company committed to some of the core values of corporate responsibility could so blatantly cross the line into not only unethical but clearly illegal practice in a key area of its responsibilities? Is this just another greenwash case to fuel further cynicism about the CSR commitment of corporations?

2. Is it an industry phenomenon, or just one bad apple?

The debate about companies providing overly optimistic fuel consumption data is an old one, and a number of other companies have faced problems with overstating the frugality of their cars. VW's rigging of the tests takes the game to a whole new level, but does this mean it is an outlier or just the first one to get caught taking things too far?

3. What was VW thinking in terms of not getting caught?

It would be interesting to find out what the discussions within the company looked like when the software used to rig the tests were devised and implemented. VW must have been convinced they would not get discovered. What does this say about regulation of the auto motives industry, especially when they were eventually rumbled by a relatively unknown clean air group that was actually hoping to show that diesel cars were clean. Why did nobody within the company conceive that in a highly scrutinized industry, such as the global automotives industry, these practices would not get examined?

4. How far up the hierarchy did knowledge about these practices go?

When Amazon got into the headlines recently, Jeff Besos issued an immediate statement that he had non knowledge of the practices and did not approve of them. So how much did VW senior executives know? It is hard to imagine that this was just the work of some 'rogue engineers', but at the same time it is curious that VW has tried to protest its innocence for more than year since the falsified tests were uncovered, blaming a software malfunction - only eventually coming clean when the EPA threatened not to issue them with environmental certifications for their 2016 models. As one reporter noted, the VW CEO is a detail-oriented engineer himself: "It's difficult to imagine that a man who fixates on such minute details as the noise a steering column adjuster makes would know nothing about active manipulation of diesel emissions while he was in charge." So what does the scandal say about the corporate culture at VW and the role of its leaders in setting the ethical tone?

5. How can this happen in a quasi-public institution such as Volkswagen?

VW, from the outset, had a rather broad social mission. The company's mission has been from the outset to provide Germans with mobility. Even today, the social mission lives on: the company claims to "aspire to shape the mobility of the future – making it responsible, environmentally compatible and beneficial for everyone." It is even part-owned by the government of Lower Saxony, which still owns a controlling 12.7% share of the company. So this is not a company solely controlled by some profit maximizing hedge funds or other purely profit driven investors. The decision to try and cheat the regulators however has ended up wiping billions off the value of the company in a matter of days. So what should we conclude about whether ethics pays or not and whether social purpose can really be integrated into the corporate form? 

There are many more aspects to the story. At the end of the day, the 'green car' and VW's 'BlueDiesel' will maybe just count among the many ways car companies (and yes, the rest of us) try and disguise the fundamental ecological contradictions of our modern automotive civilization. But it will also be fascinating to watch the details of this story unearthing the kind of decision making prevailing at supposedly responsible companies. VW's original motto, 'Kraft durch Freude' or 'strength through joy', it certainly won't be though. 

Photo by John Matthies. Reproduced under Creative Commons Licence

The business of modern-day slavery

Events last week in the UK, where three women were rescued from what appears to be a 30 year-long situation of forced domestic labour situation, have focused a great deal of attention on "modern-day slavery". But it is hardly a one-off. Issues of forced labour, human trafficking and modern slavery are increasingly gaining public attention. Business, however, has been slow to engage in the conversation.

Perhaps this is no surprise given that no company wants to run the risk of being tainted with the spectre of slavery. But most of the big modern slavery stories involve business. From children forced to harvest cotton in Uzbekistan to labourers enslaved to fish in the waters of New Zealand, hardly a week goes by without a new story of extreme exploitation being splashed across the media. The appalling treatment of migrant construction workers in Qatar the build up to the 2022 FIFA World Cup has gained more exposure than most, likely because of the headline claim that construction for the World Cup will leave 4000 migrant workers dead. It is a heart-stopping statistic.

With all this noise around modern slavery, much of it at the hands of campaigners such as Anti-Slavery International, Free the Slaves, and Walk Free (who are responsible for the recently launched Global Slavery Index), governments at least are gradually starting to act. The UK Government is already in the process of drafting a modern slavery bill to make the complex legal situation around the issue more clear for prosecutors. The US has also launched initiatives to tackle human trafficking in the supply chains of companies and government contractors. Canada too now has a national action plan to combat human trafficking whilst Brazil has perhaps gone the furthest of any country in seeking to tackle the problem.

Such measures are to be applauded, but there's still a long way to go in effectively combating the worst forms of human exploitation. And one crucial player that so far hasn't brought much to the party is business. Compared with many other social and environmental issues, modern slavery has not seen much enthusiastic response from the business community. Although virtually all corporate codes of conduct prohibit any kind of forced labour, the issue is rarely given any particular attention. Most businesses simply assume that it doesn't affect them. However, the torrent of news stories across various countries and industries suggests otherwise. Companies just aren't looking hard enough to find their connection to modern slavery.

David Arkless, formerly President of Corporate and Government Affairs at the global temp agency Manpower, is probably the most visible and articulate member of the business community involved in anti-slavery efforts. He said last week that he was "frustrated by the lack of involvement of corporations in efforts to ensure that their supply chains are verified against the use of abused labour and that most of the big corporations of the world have not amended both their financial, expense and human resource policies.” You can understand his frustration. Most business leaders are simply burying their heads in the sand.

This is a major stumbling block because most forms of modern slavery either involve business or affect it in some way. After all, forced labour is a particular way of doing business - a morally regnant one for sure, but a business practice all the same. Even illegal industries such as prostitution and drug cultivation, both of which have had numerous documented cases of trafficking and forced labour, rely on business principles and come into contact with legitimate businesses at some stage. The bottom line is that we have to understand modern slavery as a business if we are to make any real sense of it and take appropriate steps to prevent it.

The research base exploring the business of modern slavery is especially thin. So I was pleased last week to help launch a new report funded by the Joseph Rowntree Foundation on the business models and supply chains found in forced labour in the UK. It was a fascinating project to be involved in, and along with my co-authors, I'm hoping that it really helps to shine a light on the economics of modern slavery in developed country contexts.

One of our main findings is that although forced labour is often described as a hidden crime, it is not as difficult to unearth as many in the UK, including businesses and government, seem to believe. As my co-author Genevieve LeBaron and I say in a recent article for The Guardian: "The problem is not so much that we cannot find forced labour; it is that either we choose not to look where it is most likely to occur or we simply misclassify those being exploited as criminals rather than victims. A new approach to detecting and enforcing forced labour is necessary. To pinpoint its occurrence we need to start by examining the forces of supply and demand."

Much still needs to be done to really understand how these economic forces lead to such extreme forms of exploitation. But the good news is that we're making good progress. The challenge will be getting legislators and business leaders alike to take our findings seriously.

AC


Photo by Junaidrao. Reproduced under Creative Commons licence

Is selling human organs really so unethical?

Earlier this week, the World Health Organization (WHO) reported on the rise in the illegal trade in human organs. The WHO estimates that more than 10,000 black market operations involving purchased human organs are now carried out every year. There are serious ethical and medical concerns associated with the practice. Sellers risk being exploited, buyers may be victims of scams, and both parties face far higher risks of medical complications due to the lack of proper medical care.

The problem is though, although the commercial trade in organs is in many respects morally repugnant, many of the problems associated with the illegal trade in organs are actually directly a result of its illegality. Backstreet operations, black market trading - these are the critical risk factors here, not its dubious moral status. Plus, for all the important concerns about the problem of poor people being exploited to sell their organs to the rich, it is important not to mix up what are two different ethical issues here - one about exploitation of organ sellers and one about whether the commercial trade in organs is something that is acceptable in society at all. Both of these are worth examining in a little more detail.

First off, lets bracket for a moment the problem of exploitation and just consider the ethics of commercial organ trading. Sure, we know the practice has been made illegal in almost every country - but is selling human organs really so bad? One major issue that we have to consider here is that, like it or not, the sale of human organs saves lives. Donations of organs from the deceased are simply too limited to meet demand almost everywhere. In the US, more than 100,000 people are currently waiting for organ donations.  In China ,it is estimated that a million people are currently in need of a kidney ... yet last year only something like 5000 actually received one. Most countries are facing a severe supply problem. So from a simple societal cost-benefit perspective, then,  providing the seller stays in relatively good health, and the buyer is able to live longer or better than they would have otherwise, the benefits would appear to exceed the costs. Without sufficient supply from other sources, commercial organ trade can make society as a whole better off.

That is not to deny that there are indeed very significant costs that have to be borne by the seller here in terms of potential health risks. Even if society can be shown to benefit in aggregate, not everyone benefits equally. After all, the seller is potentially putting their own life at risk here. But if we can  imagine a situation where the seller is provided with suitable safeguards to minimise these risks - through a guaranteed level of decent medical care for example - then the cost-benefit argument could certainly prevail. In fact, that is precisely why we do often permit some forms of voluntary non-paid donation: under the right conditions,  live organ donation can make a net positive benefit to society. In principle, that cost-benefit equation should not be materially changed by introducing a commercial transaction ... except of course we have thrown some actual financial costs and benefits into the mix.

To be sure, few of us are comfortable with the idea of selling organs for money. For critics, it only makes sense from a cost-benefit point of view if we ignore the more ambiguous costs involved, such as the loss of basic humanity involved in such an act. Simply put, it is not something we want to accept in a civilized society. A similar argument is also raised in relation to other "unacceptable" practices, such as euthanasia, prostitution and drug use. Legalization might well create benefits, minimize harms, or simply enable greater personal freedoms, but the law also has to codify the principles of  human society that we want to establish and live up to. And commercial trade in live organs, so the argument goes,  is against those basic principles.

Let's be clear though: those principles come at a cost - the cost of human lives. People are literally dying waiting for suitable organ donors. At a time when the illegal trade is actually growing, shouldn't we be revisiting the question of whether the commercial organ trade is really so unacceptable that it's worth letting people die for our principles? Isn't it time we asked whether the legal prohibition route is actually working?

The exploitation question is a different but no less important question. The prospect of the most disadvantaged in society selling their own body parts just to get by assaults our most basic principles of human dignity. Obviously we need to tackle poverty itself in a more concerted fashion to get to the heart of this problem. But in the meantime, the big question we have to ask is whether the decision to make the commercial trade in organs illegal is actually benefiting or further exacerbating the exploitation of the poor?

Regardless of its legal status, people will continue to do whatever they can to escape poverty, and for the truly desperate, their organs may be their most valuable asset. Pushing such people into the hands of criminals and unlicensed medical practitioners, however, is a recipe for adding yet more exploitation onto an already unfair situation.

Legalization by itself would not solve the problem.  But if we were to accept that, in principle at least, the trade in human organs might be socially acceptable, the real question then becomes: how could we do it in a responsible way so that people do not get exploited?

There's no easy answer to this, but it is possible to conceive of a tightly regulated system that could eliminate most if not all of the worst forms of exploitation. Price controls for organ donations, strict rules for participation as donors and recipients, mandatory counseling for prospective donors, enforcement of medical follow-up, quality control checks, a transparent system to ensure clear organ provenance - these are the kind of arrangements that a serious regulator might want to put in place.

Many governments probably won't have the will or the capability to do this effectively, and it's hardly a very encouraging sign that the only country currently operating a legalized system is that great bastion of freedom and security, Iran. But a few years ago the Singaporean Government was apparently also considering the issue, although nothing seems to have come of it. Who's to say that China wont be the next, especially given that they are currently operating a widely condemned practice of harvesting organs from executed prisoners. A voluntary system could hardly be more controversial. But who these days would really be brave enough to advocate legalization given the international consensus against the trade? Maybe it's time for those on the intermiable organ waiting lists to start getting organized.

 Photo by Lasse-san. Reproduced under Creative Commons Licence

Cucumber ethics

Last week’s E-coli outbreak in Germany was another interesting case study in the ethics of risk management. A ferocious looking bacteria, thought to be carried by the very food we eat whenever we feel like a healthy option (i.e. salad vegetables) has led to a scare that has plummeted many of Europe’s farmers into severe financial troubles. On the face of it the numbers don’t quite hit home why exactly consumers and regulators across Europe (and especially in Germany) have reacted so strongly: while, sadly, 26 people have died so far from the E-coli outbreak, this number looks negligible in comparison to Germany’s 3,651 fatalities in road accidents annually (in 2010). Banning Spanish cucumbers – sure thing! But touching the fundamental right of Germans to speed without limit on the Autobahn? No way, no one even thinks about that.

Fair enough maybe - food is one of those things that does raise the risk perception more than almost any other. But one of the more curious things about the outbreak was the initial culprit: cucumbers (especially as attention eventually turned to those evil little bean sprouts). But of course it wasn't just any old cucumbers - still less German cucumbers - but Spanish cucumbers that were blamed. In a continuously integrating EU economy, suddenly a poor little vegetable becomes the carrier of nationalistic identities and accusations.

There is something about cucumbers, one has to admit. In the German context, the vegetable has once before been at the centre of a rather black humoured joke just in the wake of the unification in 1989. The German satirical magazine ‘Titanic’ opened with a picture of ‘Zonen-Gabi’ (‘Gabi from the East’) holding up ‘her first banana’: a cucumber, peeled in the style of a banana. This of course was to make fun of the chronic absence of exotic fruits in the East during the time of the wall. The cucumber became an epitome of the split national identity that divided the unifying halves of the country at the time.

Poor cucumbers have also been at the centre of many jokes about the regulatory frenzy of EU bureaucrats in Europe. Allegedly there exist norms that lay out not merely how long, hard and green a cucumber must be but which even stipulate the degree of a cucumber's curvature: at maximum, its arc can be no more than 10 millimetres per 10 centimetre length. Imposed on poor Polish or Czech farmers prior to their countries’ accession to the EU, these regulations made the vegetable a symbol of the hegemonic power of Brussels and the nearly totalitarian zeal of regulating even the smallest little detail. All symbolized by, yes, cucumbers!

How political the innocent vegetable can become was demonstrated nowhere more strongly than in Iraq. According the UK newspaper the Telegraph, a few years ago Al-Qaeda leaders in Anbar province allegedly banned women from buying cucumbers because they considered them to be ‘male’ vegetables, and therefore in violation of religious law. Tomatoes, however, were perfectly fine for women to buy because they were considered female.

Well, if we were to do more research on the cultural history of cucumbers, who knows where we might end up - but Crane and Matten have no intention of jeopardizing the ‘General Audiences’ rating of their blog! Still, who would have thought that the lowly green vegetable could be such a repository of ethical values and a tool for inter-cultural conflict. So next time you're in the supermarket remember to take a second look at those cucumbers. There's so much more to them than meets the eye.


Top photo by Surian Soosay. Reproduced under creative commons licence

Business and climate change

Observant readers will notice that we've started adding some of our favourite blogs on business ethics-related subjects in the blogroll that you'll find on the right hand side of the screen. The latest addition is Climate Change Inc, the new blog on business and climate change by David Levy, a professor at the University of Massachusetts, Boston. Levy always has something pretty interesting to say, particularly on the politics of business responses to climate change. He's someone whose work we've found stimulating, and have always enjoyed bumping into him at conferences and collaborating on a few things along the way.

The new blog deals with all things business and climate change related, though with a particular slant towards politics and policy issues. We particularly liked this recent post on how the oil industry has recently resurrected its "carbon wars" strategy, including the mobilization of American citizens to protest against proposed climate change regulation. Here's what he says....

"....large numbers of Americans are suddenly getting excited about climate change. They are not, however, worried about rising CO2 levels and the impact on sea levels, hurricanes, or glaciers. They are jumping on buses and crowding into rallies to oppose the proposed energy legislation, which is intended to address climate change. Through placards, slogans, and speeches, the attendees demonstrate their concern that their very way of life – cheap fuel and electricity, even their jobs in energy-rich states – is under imminent attack. This threat is apparently more palpable and galvanizing than climate change, a distant and abstract concern, if not a hoax perpetrated by the same intellectual East Coast Europhiles trying to impose socialist medicine on beleaguered overtaxed Americans.

Perhaps a few of these angry citizens spontaneously joined the rallies in a state of high dudgeon after perusing the 1200 page Waxman Markey bill. Most likely, their transportation and placard messages were organized by Energy Citizens, whose website proclaims that it is “a nationwide alliance of organizations and individuals formed to bring together people across America to remind Congress that energy is the backbone of our nation’s economy and our way of life.” In fact, Energy Citizens was set up and financed primarily by the American Petroleum Institute (API), the US oil industry association, with support from the National Association of Manufacturers and other groups. It has contracted with a professional events management company to plan about 20 rallies against forthcoming energy and climate legislation in Southern US states, with a focus on energy producing states such as Texas. Member companies are encouraging their employees to join in. This project complements a massive increase in lobbying efforts by the fossil fuel industry in the last six months."

Fascinating stuff. And, as Levy notes, a real return to the oil industry's seemingly dead-in-the-water tactics of the 1990s when climate change denial was all the rage and various political strategies were deployed by the sector to derail the gathering climate change consensus. Levy goes on to offer an analysis of why the industry appears to have engaged in Carbon Wars round 2, but admits that a final conclusion is difficult to arrive at given the mixture of motives, interests and positions among some of the key players. However, as we mentioned not too long ago in relation to BP's "Back to Petroleum" strategy, a new conservatism appears to be blowing in the oil industry around sustainability issues (or at least the pretense of progressiveness has lost its allure), so there is much to be gained in the run up to Copenhagen by seeking to tweak the political climate towards a more accommodating pro-fossil fuel position.

Our best bet is that a range of different company strategies may start to emerge again which could derail any kind of univocal industry positioning, which seems to be the aim behind the latest manouevuring. But in the meantime, it looks like the main business action will be in the nonmarket (i.e. political) arena rather than in new market developments, at least until a new climate consensus is reached post-Copenhagen. Be sure to keep up with Levy's blog for all the latest developments.

Barack Obama to be a boost to CSR?

As many people have remarked, last week's election of Barack Obama to the US Presidency was a historic event. One of the questions we have been musing on though is what exactly an Obama Presidency might mean for business ethics and CSR in the future. The George Bush years are certainly finishing with a nasty bang in terms of the financial crisis and the legacy of ethical mismanagement, as we have discussed in previous blogs. That said, for better or for worse, the free market agenda endorsed by Bush has clearly provided plenty of scope for voluntary CSR initiatives ... and for a fair dose of corporate irresponsibility. So it is perhaps no coincidence that the last eight years have seen the issue of responsible business come to the fore like never before. Without regulatory oversight, business self-regulation has been the main game in town for those seeking responsible practice.

So what of the future then under Obama? Much has been made of the President-elect's commitment to climate change mitigation strategies (specifically cap-and-trade legislation). Andy Savitz, writing in Ethical Corporation recently, suggested that would be the area where he would be likely to make immediate impact:

"Climate change, one of his recurrent campaign messages, is the easiest and most dramatic way for president Obama to deliver on his promise of bi-partisanship at home and to show the rest of the world that we are back in the international relations business. The financial mess may slow it down, but we can expect to see a complete turnabout in Washington, with national cap and trade legislation and the emergence of the US as a leader in the global climate change negotiations."

But there are also many other areas where, we might see the change that Obama promises having an impact on CSR - from health care reform (where private sector responsibilities might be fundamentally reshaped), to labour conditions (where minimum requirements may be put on foreign imports), to clean technology and "green jobs" (where companies may face new incentives and disincentives to accelerate sustainability and oil independence).

So perhaps it was no surprise then that a survey conducted at last week's Business for Social Responsibility (BSR) conference reported that almost nine in ten of the survey's 400 or so respondents welcomed Obama's election as promising a positive impact on advancing CSR. But the scale of optimism was quite remarkable given the circumstances of the financial crisis. Plus, this anticipation of an Obama boost to CSR is matched by an increased expectation of business regulation. The same survey reported that an overwhelming majority (94 percent) anticipated increased government regulation of issues related to corporate responsibility, including climate change (86 percent) and corporate governance and financial transparency (83 percent).

So what's going on here? On the one hand, we see expectation of more CSR, which is typically associated with voluntary activity beyond that required by law. On the other, we're also seeing greater expectation of regulation itself - which according to many would be seen as an alternative to voluntarist CSR. Its an interesting confluence, which at some level is perhaps a reflection of an underlying conviction that the US could move towards an approach to CSR where different constellations of regulation, self-regulation, and voluntarism are developed at the industry level through multipartite initiatives. Certainly, one of the main areas that we see enthusiasm for Obama from the CSR movement is his commitment to a unifying agenda, which many see as promising a new era of collaboration between business, government, and civil society.

The first test of this will probably be in the automotive industry, where the failing "big 3" car companies are seeking financial assistance, and where Obama could potentially see millions of people lose their jobs in the first year of his presidency. At present the rhetoric is still about protecting ordinary workers and ensuring that the car industry remains both economically and environmentally sustainable within a broader agenda of reducing America's oil dependency (which for Obama appears to be more about developing renewable energy sources than military manoeuvring in the Middle East). But there are going to be tough choices to be made here, and it is uncertain yet whether the new administration will have the skill (or the time) to develop a sophisticated package that manages to simultaneously save the industry, protect jobs in the long term, AND turn the American car giants around into sustainable innovators. Whatever the outcome, it appears that we will be getting deep insight into Obama's real impacts on CSR sooner rather than later. Its going to be an interesting few months...

Ethics and financial crisis

With stock markets plummeting, financial institutions going belly-up, and governments on both sides of the Atlantic stepping in to bail out failing companies, the prospects for investors, the financial community, and even tax payers do not look good. And with the likely knock on effects for employment in other sectors almost certain to result in job losses, the fall-out from the current market turmoil is going to be widely felt.

For us business ethics professors, however, the picture is somewhat mixed. On the one hand, issues of social responsibility tend to be higher on the agenda when times are good. On the other, when greed and corruption contribute to downturns (such as in the post Enron wake of the early 2000s), significantly more attention can shift to issues of integrity and governance in business. Its no coincidence that the 2000s have witnessed perhaps the most sustained growth yet in the corporate responsibility 'industry' and in courses, books, conferences, and workshops on the subject.

Today's financial crisis clearly has at least some of its roots in corporate iresponsibility around the subprime mortgage market in the US. If 'responsible lending' practices had been observed (or if tighter regulatory oversight had been imposed), we might not all be in this position right now. Certainly, the financial industries of other countries appeared to be more attuned to the problem than in the US, such as in the UK, where the British Banking Association has in place a code on responsible lending:

Responsible lending is providing credit, based on background checks and professional judgement, to people who can accommodate regular repayments without getting into financial difficulty.

But although the sub-prime problem was the rockfall that got the financial landslide going, there are a number of structural issues that also need to be considered. And here we need to perhaps look at deeper institutional issues rather than the ethics of individual people or companies. As with Enron, the fault lines for disaster run through the system of risk management, regulation, transparency, business interdependence, and reward systems, not simply rogue traders crossing the ethical boundaries.

There are ethical issues here too of course, but they are at a different level to the ones that most people think of when they think about corporate responsibility. Here, we are talking about the ethics embedded in business systems and institutions, and how ethics and the law intersect to ensure that markets work effectively, fairly, and ultimately securely. Sure, a lot of our current problems with the financial crisis can be put down to individual greed, mismanagement, and bad decisions, but ultimately it goes deeper than that. Whether this means that the current crisis will be a boon to business ethics however depends on how well us ethical experts manage to get to grips with these deeper level problems.

For further reading on this, check out our paper on challenges to the business ethics curriculum, published in an early version available free online and later in the Journal of Business Ethics.

Fat chance for CSR

Regular readers of the Crane and Matten blog will be aware of our ongoing interests in social responsibility and self regulation in the food industry. Few subjects arouse as much debate as the stuff we put on our plates every day, the things that make us fat or thin, healthy or unhealthy … and of course the role that corporations play in enabling or preventing us from making informed and sustainable choices about food consumption.

So it is with some interest that we can report that this week saw the introduction of the first bill in the US that requires food outlets to display the calorie contents of their products on menus (see the recent newspaper article in The Guardian about this for more details). Yes, New York City has defied the vigorous campaigning of the fast food industry to put in place regulations that will ensure that customers in the city will no longer have to scrabble through the desultory rack of in-store nutrition leaflets or wade through the games and promotions on the corporate website in order to work out just how many calories that bucket of fried chicken and fries is going to pack.

Regulation of course is somewhat anathema to some (but not necessarily all) in the CSR world. Proponents of social responsibility typically promote self-regulation by business as a preferable alternative to government-imposed legislation. But in the hard fought battle of the bulge in New York, the city’s restaurant chains have been reluctant to introduce more far reaching CSR initiatives that may have staved off today’s regulation.

So from our perspective, the new legislation represents something of a mixed blessing. Sure, customers should be able to make informed decisions on the basis of readily available, easily comparable, and ultimately relevant, information about their prospective purchases at the point of sale. The New York legislation clearly has the potential to deliver this, providing restaurant chains live up to the spirit as well as the letter of the law. And, most importantly, such information is critical to the enabling of what we discuss under the label of ‘consumer sovereignty’ in our business ethics text. Basically, as the INSEAD professor Craig Smith has shown, the point is that ethical exchanges require consumers to have appropriate capability, information and choice in making their purchase decisions.

But, on the other hand, the New York regulations also, to some extent, a represent a failure on the part of the food industry’s CSR movement to get ahead of the game and work through a suitable industry-led alternative. Nutrition leaflets and website data are all well and good, but they hardly represent a creative and sustainable response to the health issues facing a society in the midst of a rapidly escalating obesity problem. McDonald’s, KFC, Burger King, Pizza Hut and the rest of the usual suspects have been talking the talk well enough, but in the end this wasn’t enough, at least not in New York.

Of course, the interesting question now is what will happen elsewhere, whether in other US states or further afield. Will the New York regulations act as a spur for more states or even countries to legislate? Will the food chains get their act together and instigate more responsible labeling programmes? Will we see new operators entering as-yet unregulated markets with information-led, nutrition-oriented value propositions, just as we have in the packaged food sector? Or, will all the fuss die down leaving fast food corporations free to scupper the new regulations before they have a chance to seriously take hold? The writing is on the wall, for sure. The only problem is, it’s just a little hard to read.

Crisis management - European style?

Our more longstanding friends, i.e. those who have worked with the first edition of our Business Ethics book, will remember that its success was very much predicated on the proposition that it was the first text book to talk about business ethics from a European perspective. OK, we toned it down for the second edition, but still the main focus of the book is to provide an account of business ethics beyond the Anglo-American version of capitalism – which still is the backdrop of most textbooks in the field.

There has been some debate about whether – and if so, how – a specific European perspective on business ethics is warranted. A good way to learn about these things is to look at how different economies deal with ethical scandals (e.g. Ethics in Action 6.1 in our Business Ethics book). A newspaper article in the Canadian Globe and Mail discusses the recent scandal in France at the bank Société Générale in the context of the Enron case and comes up with some really striking comparisons.

We talked about Jérôme Kerviel in one of our latest blogs and it is indeed fascinating to watch how the French public, rather then seeing him as a villain and a crook, views the bank and its managers as the ones who are responsible for what happened (you can give your own assessment here, see the box on the right). The general mistrust of capitalism and big corporations still seems pretty entrenched in Europe. On facebook, there are now numerous support networks for Kerviel. For instance the group “Jérôme Kerviel should be awarded the Nobel Prize in Economics" has no less then 2,517 members! Could you imagine this happening to Ken Lay or Jeff Skilling in the wake of the Enron disaster…

It is also conspicuous to see the reactions. While the US government took a fairly hands-off approach to the actual downfall of Enron, incl. the plight of many employees who lost jobs, savings and pensions, Nicolas Sarkozy’s government is anything but ‘laissez faire’. Worried about a foreign takeover of Société Générale it appears that the French government has now elected to micromanage the case and has even considered a fairly unrealistic bail out. While the magnitude of this case probably will not allow for this, European governments have a longstanding history of becoming directly involved in managing these issues. And this even at a time where we would expect newly wed Sarkozy to have other things on his mind…

This hands-on approach contrasts significantly with the US, where the main reaction of the government was to issue new legislation with the Sarbanes-Oxley Act, setting tighter rules for the game, rather than trying to become a player in the game itself. It is also interesting to see differences within Europe here. The Globe and Mail article refers to how Gordon Brown has dealt with the recent collapse of a major British bank (Northern Rock): While Brown was actively (as it were, European-style) involved in protecting the savings and mortgages of millions of British working men and women, the solution was in the end left over to the market: brokering the takeover of Northern Rock by Richard Branson’s Virgin empire appeared the best solution, showing strong reliance on markets and free enterprise in the running of the economy – something we can associate more strongly with the Anglo-American system of capitalism.

It will be fascinating to watch how the personal fate of Kerviel will develop over the next couple of weeks. He will hopefully not end up as Enron’s vice chairman John (Clifford) Baxter who committed suicide, unable to deal with the personal shame about his role in the scandal. But it will also be fascinating to watch the further fate of Société Générale. Our money is on a take over by another French bank, brokered in some backroom of the Elysée Palace!

I'd like to teach the world to .... eat?!

Probably the title of this post is lost on some of our younger readers, but it refers to a classic ad by Coca-Cola, where a multicultural bunch of young people with bad haircuts (well, it was the 70s) sing about peace, love and understanding in the guise of selling more soda, all to the tune of "I'd like to teach the world to sing". Beautiful. I don't know about you, but it gives Crane and Matten an urge to go grab a couple of cold ones from the cafe here just thinking about how much our friends at Coke have contributed to racial understanding and that great one-world vibe. Well, not counting the record breaking court fine for racial descrimination in 2000, their problems with water use in India ... oh and the fact that here we have a Pepsi-only exclusive concession!

But anyway, we digress. The point of the post is not actually to talk about Coca Cola, but about one of the other great giants of American global branding - McDonald's. Anyone that has read our Business Ethics textbook will know that we always like to see what's going on in the world of Ronald McDonald - there is always a meaty story or two to get our teeth into (if you'll excuse the pun). This time round, we are curious to explore what exactly it is that McDonald's hopes to teach the world. Probably not, as in the Coke ad, to teach the world to sing, but one thing is for certain, everyone's favourite fast food company is not content to leave the teaching to mere teachers.

First up, from this side of the Atlantic, news that McDonald's is pulling its ill-fated sponsorship of elementary school report cards in Florida (thanks to Ryan for pointing that one out to us). Yes, that's right, McDonald's was giving away happy meals as a reward for good grades, complete with a beaming picture of Ronald McDonald holding up the golden arches on the report card envelope. You couldn't make this stuff up. Critics rightly questioned whether McDonald's was sidestepping its own pledge not to advertise in elementary schools, whilst the firm countered that this was "not advertising". Oh, right, well that's OK then.

Only last week, we blogged about some of the issues around food companies self regulating their marketing to children, and this looks like a particuarly good example of where a stronger system is necessary to prevent companies breaking their own rules. As it turns out, the issue caused such a stink that the initiative was quickly dropped by McDonald's, who probably couldn't believe all the fuss since they had just taken over from Pizza Hut who had a similar promotion on report-card jackets for about 10 years. Perhaps the real question is how Pizza Hut managed to get away with it so long, but that's another story.

Not content with providing "incentives" to American kids for getting A's, from the other side of the Atlantic comes news that McDonald's is going to be offering high school qualifications to its staff in the UK. With the British Government looking to provide more practically oriented qualifications, as well as hoping to leverage some of the massive investment in company training into nationally recognized skills awards, McDonald's is one of three UK companies slated to run pilot programmes that will result in A' level qualifications for eligible staff.

Given that even the British Prime Minister himself, Gordon Brown, has said that the McDonald's A' level will be a "tough course", we clearly should have nothing to worry about. After all, he expects them to be ultimately suitable for entry into university. But even though we don't have a problem at all with complementing school education with practical training, there are clearly dangers here in equating a rather narrow company specific training course - however good it may be - with a decent high school education. Corporations quite naturally train people to work in the company's best interests, and unless students are also given the tools to put this training into a wider context, there is not much prospect for developing well rounded educated individuals. It is not that a McDonald's training scheme couldn't be part of this, but it would need to be effectively and imaginatively embedded into the curriculum to ensure that students are not short-changed by a government simply contracting out the educational process to "socially responsible" corporations. Maybe they should offer some free happy meals to anyone who makes a good suggestion for how to do this....

CSR or regulation for food advertising?

CSR is often seen as a way of forestalling legislation, or of replacing hard government regulation with softer self-regulation from industry. In the UK, where governments since the 1980s have tended to champion CSR, comes news of another victory for self-regulation over mandatory restrictions, this time in the area of food advertising.


In the wake of increasing concerns over childhood obesity, and a general dismay over the junk that makes up many children's diets today (cynics will say that all British people eat crap food, but one half of Crane and Matten at least tends to deny that), fast food companies and soft drinks multinationals have been on the receiving end of a lot of criticism.


So expectation was high that a new "obesity strategy" about to be launched by the UK Government would impose tighter restrictions on advertising of junk food. This follows a self-regulatory code launched by the soft drinks industry a couple of years ago, and new TV advertising restrictions from the communications regulator Ofcom last year that banned advertising of unhealthy food during kids programs. Health campaigners were anticipating an announcement that would extend these restrictions yet further.


According to the UK newspaper, The Guardian, though, the plans have been put on ice in favour of a more "collaborative approach" between government and industry. By this, we suppose, we can expect more CSR style self-regulation. What remains to be seen however is what form it will take.

One promising route would be something along the lines of the Europe wide voluntary initiative introduced by Coca-Cola and friends in 2006 that commited members of the Union of European Beverages Associations (Unesda), to ban advertising to children under 12, to no longer install vending machines in primary schools, and to supply machines in secondary schools with healthier products.

The initiative's first independent monitoring report, by PriceWaterhouseCoopers is now available on-line. This shows that some progress has certainly been made, especially in terms of direct advertising, whilst the vending machines issue still requires some greater effort to reach compliance.

OK, so the initiative is voluntary and there are no fines for non-compliance, but for a CSR programme it probably should be appauded - after all, it sets out measureable targets, establishes independent monitoring, and commits to publish them where we can all take a look and see how they're doing.

So if the UK government does go down the CSR route to further self-regulation in food advertising to children, it will certainly be a blow to the advocates of good old fashioned regulation as a means of keeping the big corporations on the right track. But let's hope that if that is the case, they at least use - and let's be optimistic here, maybe even improve upon - the models that are already being introduced into the industry. True, on their own, they're not going to stop anyone getting fat, but the less scope corporations have to simply shrug their shoulders and say "it's not our problem", the better.