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

Labour rights - back to the future?

While a lot of the topics we comments on in this blog are usually about either international events or the latest, contemporary developments, it is good to remember that some of the age old issues in business ethics are worth revisiting from time to time.

One of these is fair wages and the right to unionise. In North America these issues are currently high on the agenda as if we were still in the dark ages of capitalism in the 19^th century. This was nowhere more surprisingly evident than in last week’s instalment of ‘Real Time’ with Bill Maher. The show took off with an interview of Chesly ‘Sully’ Sullenberger. You remember, the pilot who landed his plane for lack of other options safely into the Hudson River in January 2009, after both engines had been struck by birds. Since then, Sullenberger, with his cool attitude and gigantic moustache not only reminded us what a real pilot should look like, but also became something of a hero.

What is interesting though is what he’s currently using his fame for. Before Congress, some time ago, he focused attention on some of the crucial ethical issues in his industry. The pay of most pilots and airline staff has dropped by around 40% and most employees – including Sullenberger – have lost their pensions when their airlines filed for Chapter 11 bankruptcy – as most large airlines in the US have done.

This silent infringement of workers’ rights has gone on for some time – but has received little attention.  One of the big events – next to celebrity campaigning by ‘Sully’ – that did draw the attention to this was the crash of a Colgan Air jet in Buffalo only a month after the New York incident in February 2009. Meanwhile, a PBS documentary unearthed some interesting details, such as that most commuter airlines, like Colgan Air (a subsidiary of Continental Airlines), pay their pilots below a living wage – between US$16 to 20,000! The documentary suggests that one major contributor to the air crash was pilot fatigue and working conditions. The co-pilot, for instance, had to sleep in the airport the night before because she felt unable to afford a hotel in Newark before starting work in the morning.

The interesting ethical issues here clearly point to the need to revisit and re-apply some stakeholder thinking to the airline industry. While customers have seen falling prices in air tickets in the last decades this seems to have largely taken place at the expense of employees. It is somewhat tragic that it took a plane crash killing all 49 people on board to alert the public to these imbalances.

Now, the issue of a living wage is something we often discuss in the context of so-called ‘developing’ countries. But these questions obviously also need to be addressed in many industrialized countries. In some ways, the US ‘leads’ the way here, especially with respect to the big controversy in recent weeks over new legislation, discussed in the states of Wisconsin, Ohio, Florida and New Jersey, which substantially cuts back the rights of public sector workers to organize and bargain collectively with their employers.

Sifting through the US papers these days, it is a little bit like good old class warfare all over again. Union membership, long in decline, is surging: the American Federation of State, Country and Municipal Employees (AFS) has grown from 900,000 to 1.4 million members in the last couple of years.

Academically, it is interesting to see that these bread-and-butter labour issues initially did not have their natural home in the business ethics curriculum. Rather, these things are mainly studied among ‘Industrial Relations’- or ‘Labour Process’ scholars, with their separate conferences, journals and textbooks. With the return of these issues to the fore, it is clearly also time for the business ethics and CSR communities to start looking closer to home. Ahead of the curve here is the Aspen Institute which has launched an initiative on Low Wage Workers. This involves a teaching module for use in MBA courses and a white paper looking at low wage work in the US economy. Let's hope it's the spur for further action that we need.

Photo by Rochelle Hartman, reproduced under Creative Commons Licence.

A cloud of well known words with some rays of sunshine

This morning the Summit opened. It was a well organized and well choreographed session. Our ten year old is a well behaved boy indeed (sorry for masculin-izing the UNGC, I just go by the blue colour of the UN...).

Ban-Ki Moon opened, followed by a number of panellists and it were the usual, well meaning speeches by many leaders in business, and civil society. Moon announced the goal of raising the membership from currently 8,000 to 20,000 by 2020. Bloomberg ventured to step out of his role as Mayor and into that of a concerned citizen by pointing to two of the major challenges for future sustainability: 1bn deaths due to tobacco consumption over the next decade, and a similar level of road fatalities, given the current trends in automotive growth. These were quite daunting, but nevertheless refreshing new angles on the issues.



Maybe i am hanging out too much on conferences that my ears are by now a bit teflonized for much of the sustainability rhetoric. But reflecting back on this opening session, I feel quite good about the UNGC. It has certainly changed the game for many of the companies involved, most of them – which I did not know – are in fact SMEs.



So the ten year old gives us some reason for pride and satisfaction. But you keep wondering if the bigger worry in fact are not those little friends of our laureate who he hangs out with. In other words, the biggest worry still are those companies who haven't even signed up (or the 1,300 which had to be expelled). I think this aspect highlights the magnitude of the underlying issue and in fact one reason why what has been achieved by the GC is undeniably a success.



I liked Philip Jennings, the General Secretary of the gobal federation of trade unions (UNI Global Union). He highlighted the persistent plight of the trade union movement and the apparent tensions between a company publishing all sort of niceties on employees in their CSR report while at the same time busting their unionized workers. Point well made.



The agenda for the future was probably best put by John Ruggie (Harvard University) in the afternoon plenary, posing that the era of 'declaratory CSR is over' and companies now have to 'know and show' concrete progress. He argued that sustainability, as suggested in the new Blueprint for Corporate Sustainability Leadership is not a 'technocratic fix' but rather an active engagement with stakeholders in concrete situations. This new Blueprint is probably becoming a rather influential tool in the future, the Director General of the Norwegian Oil Fund pointed out: they will use it as a guideline in talking to companies and aligning their investment decisions on it. It seems to be a step closer to what many businesses are calling for: a more level playing field.

What about politics?

Those of you who have followed this blog and our work over the last years will know that we have taken a special interest in the political role of private corporations. So what are the vibes here at the UN Global Compact Summit?

Well, the general gist seems to be that most of whom are quite happy to pass on more responsibility for the environment, human rights etc. (i.e. the ten principles) to the private sector. The most poignant role in this probably put forward by the UK's new Minister for International Development, Alan Duncan. I liked him when I lived in the UK, but was a bit underwhelmed by what he said. Basically he is a pink Thatcherite, talking about shareholder value and how companies can combine this with development. He ducked questions on BP and whether there is a role for governments in preventing these disasters, which was a bit weak, I found.
A refreshing accent was set by Mike Bloomberg and what the City of New York is doing. He was kind of cool, I found, saying that the City's carbon footprint is now at a third of the average American city. He said the City is willing to lead, but he expects business to do its part as well.


So far well and good. If we release corporations into this sphere though, what about democracy and political principles. There is next to no discussion on this here, apart from the occasional reference to more accountability and transparency. Maybe that should be put on the agenda for the next decade. But this will make it a really warranted area of further research for the academic community. How to make this shift in governance of societies one which is really in the interest of those who are governed? Currently, our best hope is that we will be governed by all those 'benign dictators', which are currently gathered here.