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  • 1. The ethics of private equity Let the barbarians in! Sustainable Living Hows Unilever doing? Class-action against Chiquita A difficult ethical balanceJuly-August 2011 Corporate sustainability in Switzerland On the rise?
  • 2. Re £2 ad by .ethic 00 ers ww qu alco w rec di ot rp.c eiv nt ing om sco e “M /repo u Unlocking the profit 10 rts/w 09 ate ” r in water savings How big companies manage water risk –and the business opportunities in doing so GET INSIGHT into Second Edition the most promising corporate water This report offers insights into how companies are: programmes from: Measuring, monitoring and communicating water use Designing water strategies and programmes Quantifying and reducing risks and costs Benefiting from water stewardship initiatives Get your copy now and understand the key risks and opportunities related to corporate water strategies!§Download your FREE selected findings Call us now on +44 (0) 207 375 7238 or email
  • 3. Ethical Corporation • July-August 2011 Contents 3Contents4 What’s on the web Briefing: private equity4 Letter to the editor 12 Poachers turned gamekeepers5 From the editor 14 3i – engaged investment 16 KKR – active management EthicsWatch 6 Low-cost medicine Healthy developments 19 Peter Knight We need to work together 7 Chiquita p34 A clean start for Unilevers plan? Colombian court case continues 20 CRwatch 8 Cairn Energy Country briefing: Switzerland Barbie in a bind Proceeding against Greenpeace 23 Running like clockwork 9 Revised OECD guidelines 22 China column 25 Responding to changing business Now for the hard part environment Manufacturers staying put? 28 Secret society? 29 NGO home10 Mallen Baker Making mistakes isn’t always wrong 30 Light touch authorities 31 Chemicals Health risk hysteria Strategy and management 34 Unilever Sustainable Living success? 38 Oil and gas A new contracting chain approach 42 Ray Anderson Why innovation can be the solution p23 Swiss-style ethics Review 45 Academic news 46 Report: Deutsche Post DHL 47 Report: BP 48 New books 49 People on the move 50 CEO interview with Laurent Abadie, Panasonic Europep11 Private equitys ethical development p7 Repercussions continue for Chiquita
  • 4. 4 Ethical Corporation • July-August 2011 What’s on the web The new-look Ethical Corporation website always has more analysis for magazine subscribers In the latest of his series View from the Middle, big companies can indeed be harnessed to solve was the result of unethical behaviour. Advance Aid’s Howard Sharman analyses a new some of the world’s most intractable develop- report from Accenture Development Partners, ment problems. Jane Burston from Carbon Retirement continues which suggests that in an increasingly converging her regular series of comment pieces on the world, companies will play an ever-larger role in In an online opinion piece, the Institute of carbon markets by asking what protection solving complex development problems. Business Ethics’ Simon Webley suggests that carbon offsetting is providing for the most Sharman argues that ADP’s report – Convergence while companies have established business ethics vulnerable communities. When the Clean Economy: Rethinking International Development programmes, more work is required to fully Development Mechanism was established it in a Converging World – provides some solutions integrate them into corporate culture. Sharing was meant not only to reduce carbon emissions that can take corporate responsibility activity well some findings from a new IBE survey into but also provide a means for sustainable beyond the “dabbling with doing good” that business ethics practices – which has been development in those areas vulnerable to the passes currently. updated every three years since 1995 – Webley impacts of climate change. But the dominance, Sharman highlights some of ADP’s radical says that in 2010 up to 80% of FTSE100 companies Burston argues, of rapidly industrialising countries thinking, including that shareholders could best had codes of ethics, up from around 60% in in the global carbon offset markets has led to be served if the companies that they own engage 1995. However, surprisingly, only 60% of compa- some critics questioning whether this aim of fully with solving development problems. Procter nies in 2010 provided training in business ethics sustainable development is being achieved. Gamble, for example, has four billion for all staff, a drop of 10 percentage points from And, she points out, up to two-thirds of projects customers already, giving it massive power and the previous survey in 2007. Cutting back in this currently generating revenue from offsets are influence to drive change. He believes that the way is, Webley argues, short sighted, especially not actually contributing to a net reduction in drive and innovation, and financial muscle, of when you consider that the recent financial crisis emissions. n Letter to the editor SABMiller’s tax position of $117m, or 0.4% of GDP . Within that figure, total tax economy-wide contributions were $46m, or 1.1% of Ghana’s total tax income. In addition, for every Andy Wales from SABMiller responds to allegations made in person that we employ in Ghana, a further 20 jobs are supported in the June issue the economy, a total of nearly 18,000 jobs. We believe that sustainable enterprise and employment is the best way to alleviate poverty. Achieving this involves consideration of all our article [NGOs: Transparent tax reporting, Ethical the ways that private sector investment can benefit local Y Corporation June 2011] refers to allegations made about SABMiller ’s tax practices, but offered us no opportunity to communities. respond. SABMiller strongly refutes the allegations made in ActionAid’s Andy Wales report. We do not engage in aggressive tax planning in any part of Group Head of Sustainable Development our operations, and the report includes a number of flawed and SABMiller plc inaccurate assumptions. In the 12 months to 31 March 2011, SABMiller ’s total tax contribution in Africa (including South Africa) was approximately $2.1bn. And our contribution to the countries in which we operate is much greater than the taxes we contribute. Editor’s note: A revised version of the story to which Andy Wales refers is now Professor Ethan Kapstein of Insead has found that our available online. We accept that the original story lacked balance and are happy to businesses in Ghana add economy-wide value (in terms of revise and update it. household income, tax revenues and company profits and savings)
  • 5. Ethical Corporation • July-August 2011 From the editor 5Welcome to the July-August 2011 issue his month we investigate the world of private equity funds. month, we focus on how Unilever has progressed with its highlyT Renowned for secrecy and being ruthless asset strippers after aquick profit, we ask if the industry’s reputation is fair. The picture, ambitious Sustainable Living Plan, which was launched in a blaze of publicity last November. While the company has achieved someas is often the case, is not as clear as common perceptions have it. good early progress, questions remain about how it will encourage There are instances where private equity firms can manage their its supply chain and other partnersportfolio companies with good ethical and sustainable practices that to fully engage. We’ll be keeping apublicly-listed companies might find more difficult. And where poor close eye on how this develops oversocial or environmental records, or ethical reputation, are a problem, the coming months.fixing them can be an essential part of the value creation process. Also in strategy and management For the private equity sector, though, the focus is always on making we have an essay from Interface-money from investments. But as sustainability is good business, FLOR founder Ray Anderson, whoencouraging such an approach is one of the improvements that savvy demonstrates why his description ascompany managers need to encourage. See what you think from p11. a radical industrialist is a fitting one. Our country briefing this month is on Switzerland. The country’s And the writers of a new report fromreputation for discretion and secrecy is seemingly a little other- the International Institute for Envi-worldly in a business environment where companies are under ronment and Development shareever-more pressure to be transparent. But, as we show from p23, the some of the results of their investiga-country’s neutrality has meant Swiss companies have, by and large, tion into how to manage oil and gasdeveloped with a keen sense of human rights. The presence of many industry contracting chains.of the world’s largest development and relief agencies, with head- Among the stories considered in EthicsWatch, we examine thequarters in Switzerland, has had an albeit limited impact. But, Swiss latest developments in the Chiquita class-action lawsuit, broughtconsumers have been traditionally demanding in terms of product by Colombians who blame the company for making payments toquality and environmental impact. paramilitary groups in the 1990s. And elsewhere we have the usual However, questions remain about the legacy of discretion. While comment and analysis from our regular columnists and an inter-Swiss banks are losing their reputation as repositories for assets of view with Panasonic Europe’s CEO Laurent Abadie.the world’s dictators, and many Swiss companies are genuinely We don’t publish in August, so will be back with our Septembercommitted to greater openness, the secrecy that local laws allow issue, which will include an in-depth investigation into the PRmany corporations remains a concern. industry. It will make interesting reading. From p31 we have an investigation into dangerous chemicals. As always, don’t hesitate to contact us if you have anyWhile we need to be fully aware of the potential toxic effects of comments on this or any other issue.chemicals we use in everyday products and processes, much of thehysteria whipped up by an excitable media does not always agree,it seems, with the scientific facts. Is there a more sophisticated wayof approaching chemical use, which has the appropriate safe-guards, but also a more balanced view of the risks? Leading a heavyweight strategy and management section this Ian Welsh Publisher: Toby Webb Contributors: Ray Anderson, Ellie Austin, Mallen Baker, Oliver Balch, Jeni Bauser, Elaine Cohen, Jon Entine, Editor: Ian Welsh Paul French, Stephen Gardner, Paul Hohnen, Peter Knight, Judy Kuszewski, Claire Manuel, Eric Marx, Ian Welsh, Contributing editors: Mallen Baker, Brendan May Emma Wilson Business Intelligence for Sustainability Sub editors: Sarah Burton, Gareth Overton People on the move Advertising and sales: Oliver Bamford Design: Alex Chilton Design 7-9 Fashion St, London E1 6PX UK | +44 (0) 20 7375 7518 | +44 (0) 20 8834 1354 Subscriptions: +44 (0) 20 7375 7575 Editorial: +44 (0) 20 7375 7213 Subscriptions Corporate subscription Ethical Corporation is printed by Four Way Print Ltd on Green Coat plus paper, which ISSN 1758-1575 | +44 (0) 20 7375 7575 packages from £495 comprises 80% recycled and 20% Forest Stewardship Council certified source material.
  • 6. 6 EthicsWatch Ethical Corporation • July-August 2011 EthicsWatch Wal-Mart wins Retail mammoth Wal-Mart breathed a sigh of relief in June when the Cheaper medicines, Chiquitas court case, Arctic exploitation and OECDs revised guidelines United States Supreme Court, in a narrow 5-4 vote, dismissed a class DNY59/ISTOCKPHOTO.COM action against it brought by 1.5 Analysis: low-cost vaccines million female former employees. The workers had accused Wal-Mart Health benefits of gender discrimination in setting pay levels and granting promotion, By Claire Manuel arguing that female employees are For companies prepared to cut the costs of paid on average 37 cents less per their medicines for the developing world, hour than their male counterparts. there’s more in it than a warm glow of The justices decided there was no doing good systematic discrimination, and the women should bring cases individu- ublic and private donors from around the P world have pledged more than £2.6bn to help immunise more than a quarter of a billion ally if they felt they had been wronged. However, a study for the New York Times seemed to show a children in developing countries by 2015. Profits fund research bias in Supreme Court decisions in Joining in the fun, UK prime minister David favour of big business, with the Cameron pledged £814m at the Global Alliance “GSK is committed to increasing access to our current justices finding for companies for Vaccines and Immunisation (Gavi) medicines and vaccines for people, no matter in 61% of cases, compared with an conference in London in June, while Bill Gates where they live. We believe this is the right average of 42% over the period pledged £600m on behalf of the Bill Melinda thing to do and that it will contribute to our dating back to 1953. Gates Foundation. business success in the long term.” A number of drug manufacturers have also For GSK, it is not an act of philanthropy, Holding action committed to lowering prices on vaccines Pamba says. The company is changing its A Chilean court has put on hold a against some of the major killer diseases in the business model “to enable us to make our controversial project to dam two rivers developing world. India-based firms Serum medicines and vaccines as affordable as possible in the southern region of Patagonia. Institute and Panacea Biotec have committed to to as many people as possible in developing The project, a joint venture between price cuts on their pentavalent vaccines, which countries, in a sustainable manner”. Chile’s Colbun power firm and Italy’s protect against diphtheria, tetanus, pertussis For companies such as GSK, it is essential to RENELO/ISTOCKPHOTO.COM and hepatitis B, among other illnesses. achieve a balance between profit-making and GlaxoSmithKline has offered to provide the sustainability. “It is important to ensure we rotavirus vaccine to Gavi at $2.50 per dose, or make enough profit to be able to deliver a $5 to fully immunise a child – a 67% reduction return to our shareholders and to continue to in the current lowest available public price. invest in RD to discover the vaccines of Merck has also announced that it will offer its tomorrow and provide jobs for our employees, rotavirus vaccine to Unicef at discounted prices. while increasing access to our medicines and vaccines in the developing world,” says Pamba. Dam wrong? Good for business This means implementing a tiered pricing Gavi’s Ariane Leroy says that, rather than being structure, with prices aligned to a country’s Enel, would construct five hydroelectric purely a charitable exercise, there are business ability to pay. stations on the Baker and Pascua benefits for manufacturers that wish to A tiered pricing model means that rivers, which are considered pristine participate. Gavi strongly believes in the companies can make larger profits in developed ecosystems. The proposals to dam the principle of lowest sustainable pricing, so countries. They can then re-invest in research rivers have provoked massive protest in that multiple manufacturers have an incentive and development for new products. In other Chile. The court ordered the suspension to develop and supply products for Gavi words, RD is funded by tiered pricing from of the project while it considers countries, Leroy says. “As companies that developed countries. appeals against the Colbun/Enel plans produce these vaccines become more efficient But safeguards are required to ensure that from environmental groups and some over time, they are able to reduce the unit cost low-cost vaccines don’t find their way to the members of Chile’s senate. of production.” black market. GSK’s precautionary measures In addition, the high volumes purchased include monitoring for unusual sales activity, UK looks really offshore through Gavi funding enables manufacturers and using only trusted distributors. “This can, for wind power to benefit from economies of scale, which can of course, only go so far but we believe that the All parts of the British Isles came further decrease their price offers. potential benefit of low-cost vaccines for people together in mid-June to work on Allan Pamba, director of public engagement in developing countries outweighs the risk,” wind and wave power. Under a deal and access initiatives at GSK, agrees. He says: Pamba says. n signed in the British-Irish Council, the Republic of Ireland, the United
  • 7. Ethical Corporation • July-August 2011 EthicsWatch 7Kingdom, the Isle of Man and theChannel Islands will aim to get more Analysis: Chiquita company ever to do so,” Loyd says.interconnected so that windy days In 2004 Chiquita sold its Colombian opera-are not wasted and renewable power Serious legal banana tions at a loss. Then in 2007 the companycan be shared. UK energy ministerCharles Hendry says the agreement skins remain agreed to pay a fine of $25m for violating US anti-terrorism laws.will help Ireland in particular to By Ian Welsh, editor Marco Simons, legal director for EarthRightsbecome a renewable energy exporter. Chiquita may yet lose a class action lawsuit International, a human rights and environ-“Ireland’s energy demand is only related to its former operations in Colombia mental NGO that has been closely involvedslightly larger than that of Yorkshire with the Colombians bringing the action he long-running saga surrounding against Chiquita, says “Chiquita’s extortionand Humberside [and] there hasbeen little incentive to exploit theresource,” he says. T Chiquita’s former operations in Colombia argument appears to be factually untrue” and has taken a new turn. In early June a Florida that the company “sought out and paid the judge ruled that class action lawsuits against paramilitaries in exchange for security”. DRIFTLESS STUDIO/ISTOCKPHOTO.COM the fruits giant will be allowed to proceed. Simons argues that if Chiquita had indeed The action has been brought by family been subject to extortion then it should have members of Colombians who were killed or immediately informed the authorities and tortured by terrorist groups. The plaintiffs then, if it were impossible to operate without allege that payments Chiquita made to para- paying terrorists, take steps to wind down its military groups in Colombia mean that the Colombian operations. “Duress is not a company has responsibility for the atrocities defence to complicity in murder,” he says.To become a more common sight? committed by these groups. Loyd counters that the company didn’t Chiquita had asked the court to dismiss the want to abandon its “people and commit- Separately, Hendry has claims, stating that it had been the victim of ments”, that Chiquita had wanted to workannounced that more power compa- extortion. While the judge granted the within the law and protect its employees.nies will be exempted from two UK company’s motion to dismiss claims for When the law changed, “it became apparentgovernment schemes, the Carbon damages related to that there was not a ZABELIN/ISTOCKPHOTO.COMEmissions Reduction Target and the terrorism, the plain- solution”.Community Energy Saving tiffs can continue with The Rainforest AllianceProgramme, both of which require claims for damages had been working withfirms to help their customers achieve against Chiquita for Chiquita in Colombia andenergy-efficiency savings. Companies torture, war crimes had certified a number ofwith 250,000 customers or fewer – and crimes against the company’s farms.up from 50,000 – will not have to humanity. Chris Wille, Rainforestparticipate. The extended exemption One thing is not in Alliance’s chief of sustain-will help smaller suppliers “grow and dispute: the company able agriculture, saysencourage new players into the did make payments to that Chiquita’s farmsmarket”, Hendry says. Colombian paramili- “were paragons of good tary groups. But Sometimes it’s hard to argue management, both envi-Workers united Chiquita spokesman ronmentally and socially”.A number of major Indonesian Ed Loyd says these were made purely to He says that the farms were models of ethicalsportswear factories and the brands protect the company’s staff. “Throughout the harmony and “islands in a sea of violence”. Willethat they supply, including Adidas, 1990s our employees were massacred. On one admits that Rainforest Alliance would notNike and Puma, signed up to an occasion, four were butchered in front of their have certified Chiquita’s farms if it had beenagreement in June to guarantee colleagues; on another 28 were murdered as aware that the company been breaking anyfreedom of association rights for they travelled to work on a bus.” Colombian laws.workers. The deal was brokered by So what’s next? Chiquita says it willIndonesian trade unions, backed by A price worth paying? robustly defend the class action. “We havethe Play Fair campaign. It will imple- Faced with such violence, Loyd says, the faith in the justice system,” Ed Loyd says.ment the Clean Clothes Campaign’s company took the view that making payments Simons argues that “despite Chiquita’sprotocol on freedom of association, demanded by paramilitary groups was a price $25m payment to the US government, thewhich states that factory workers it had to pay to protect employees, and began victims of its conduct have received nothing”.should be able to form unions, to do so in the mid-1990s. The real losers seem to be Chiquita’s formerand be given time and facilities to A change in the law in 2001 meant that these employees. Whatever the rights or wrongs oforganise their activities. The agree- payments became illegal in the US, and in 2003 any “protection”, they had certainly beenment would fill a gap because Chiquita realised, Loyd says, that it was not benefitting from the company’s progressiveIndonesian law “does not cover able to protect its employees legally and volun- labour code. The local labour unions hadtechnical implementation of freedom tarily disclosed the details of the payments to strongly lobbied the company to retain itsof association”, an Indonesian trade the US Department of Justice. “We are the only Colombian operations in 2004. nunion representative says.
  • 8. 8 EthicsWatch Ethical Corporation • July-August 2011 No Silvio lining Analysis: Arctic activism land’s Bureau of Minerals and Petroleum Italians have given prime minister website. Silvio Berlusconi another knock by High latitudes, “If you did publish a response plan for the rejecting a nuclear restart and water high stakes Arctic, it would be immediately revealed that there is no way you could clean up a spill privatisation proposal. In referen- dums held side by side in June, a that would not result in enormous environ- huge majority of 96% voted down By Eric Marx mental damage,” counters Greenpeace’s plans to allow more private sector UK oil firm Cairn Energy is betting big on Charlie Kronick. participation in water management, new riches pouring forth from the Arctic, Cairn’s response plan includes the hiring of and for water prices to be set in order but campaigners see the venture as a two state-of-the-art drilling vessels and some to allow a guaranteed return on dangerous gamble with the environment of the world’s leading iceberg and ice manage- investment. Meanwhile, 94% of ment operators. Cairn’s Ellie Goss says the plan mirrors those of the most stringent regu- ollowing BP’s Gulf of Mexico oil spill, envi- lations required of Norwegian North Sea F ronmental campaigners have made Arctic drilling a key battleground – with the west operators, but specifics on how Cairn would actually attempt a cleanup in the event of an coast of Greenland the frontline in a fight to oil spill are not available. turn public opinion against British oil and gas Cairn is thought to be paying $500,000 a day firm Cairn Energy. to hire the Leiv Eiriksson, one of the largest oil Twice this year Greenpeace protesters have platforms in the world, and is reported to have tried to delay drilling off the Greenland coast invested about $1bn in drilling operations to be by boarding Cairn vessels, prompting the performed over the next two years. company to obtain a court injunction imposing whopping £1.76m-a-day fines. And then more drilling? Commentators are questioning the tactic, The stakes could not be higher – for Cairn and Not been a good year for Silvio however, noting a history of bad publicity back- the industry as a whole. This is the first such firing against extractive companies perceived venture in years and if the operation proves voters said no to proposals that to be squashing individuals and organisations successful, others will soon follow. Though a would have seen Italian nuclear trying to express their views. At issue is not 2008 US Geological Survey projects a power stations reopened. Nuclear whether Cairn has the mammoth 52bn plants in Italy have been mothballed JIRI REZAC/GREENPEACE right to pursue a court barrels of oil equiva- since the Chernobyl catastrophe in remedy, says Dan Litvin, lent, only a fraction of the 1980s. Completing a disastrous of the sustainability that is likely to be day for Berlusconi, Italians also consulting company exploited at economi- rejected legal immunity for govern- Critical Resource. cally viable costs. ment ministers. These sorts of injunc- Moreover, the BP tions could make it Macondo disaster has Dole queue difficult for activists to do rightly focused atten- US banana giant the Dole Food a lot of direct protests, tion on the risks of Company has agreed to settle the Litvin says. “But the deepwater drilling in claims of about 5,000 Central and main point is there’s a the Arctic – a region South American agricultural workers, bigger picture here with extreme climates according to lawyers representing which is the long-term that make the Gulf of the plaintiffs. The workers alleged debate about drilling in Mexico look like a their health was damaged by the Greenland and the walk in the park. use in the 1970s and 1980s of the Arctic.” He argues that For now, at least, pesticide dibromochloropropane the only thing that will the time for dialogue (DBCP) on Costa Rican, Honduran solve that is engagement seems over. “I did this and Nicaraguan banana farms. and – wherever possible Greenpeace’s Naidoo getting stuck in because Arctic oil If finalised, the agreement would – taking on board the drilling is one of the bring to an end a long-running legal legitimate points made by some of the activists. defining environmental battles of our age,” battle, which has been through One of the activists’ demands – the publica- said Greenpeace executive director Kumi various stages of appeal, dismissal tion of the company’s spill response plan – is a Naidoo, moments after his arrest for scaling and allegations of malpractice. The legitimate area for discourse given the distrust yet another Cairn oil rig. law firm representing the workers, that will arise if information of this sort is kept The action came exactly one week after Provost Umphrey, says the details of private, Litvin argues. the injunction, a legal move that – at least for the settlement are being negotiated. Cairn says Greenland authorities require now – seems not to have accomplished its Other lawsuits against Dole and Dow the plan to be kept confidential, citing Green- objective. n Chemical, which has also been sued over DBCP, are ongoing.
  • 9. Ethical Corporation • July-August 2011 EthicsWatch 9Transparent investmentMore than 500 capital management Analysis: revised OECD guidelines updated guidelines as good sustainable businesscompanies and investment funds that practices and corporate responsibility are linkedare signatories to the United Nations A positive step to support for open markets. The guidelines arePrinciples for Responsible Invest-ment (PRI) will be required to forward important in that they complement trade and investment negotiations.disclose information about their Dr Roel Nieuwenkamp, managing directorinvestment decisions, under a for trade policy and globalisation at the ministryrevision of the PRI rules. The PRI of economic affairs, agriculture and innovationsays it will consult on changes to By Paul Hohnen and Ian Welsh in the Netherlands, chaired the negotiations.the way it collects information from OECD’s new guidelines for multinationals He says the most important challenge forsignatories, and will impose manda- will prove challenging companies is that they “now have to work ontory disclosure of responses from 2013. credible due diligence systems to identify and oes the adoption of new corporate respon- manage the risks of causing or contributing toAt present, about 44% of investorsanswering the survey agree to publi-cation online of their responses. The D sibility guidelines in June reflect a new level of commitment by OECD governments? adverse impacts”. This, he argues, will require some serious effort.PRI is backed by the UN Environment It certainly would seem so. Nieuwenkamp believes that even leadingProgramme and the Global Compact, While the Guidelines for Multinational multinationals “in the vanguard of corporateand has signatories from 45 countries Enterprises remain voluntary and non-binding SKYNESHER/ISTOCKPHOTO.COMwith more than $25tn of assets under for business, they contain a renewedmanagement. commitment by governments to promote them through their respective National ContactSoy standard Points. In addition, what OECD describes asBrazilian soy producer Gruppo Maggi new and tougher processes for complaints andhas become the first company to be mediation have been put in place.given Round Table on Responsible OECD commentators say there are threeSoy certification. The round table was main reasons why the adoption of newlaunched in 2006, but only approved guidelines is significant.the principles and criteria for respon- First, it is a high level recognition of thesible soy in June 2010. Gruppo Maggi responsibility of governments to refresh andoperates in Brazil’s Mato Grosso reiterate their expectations of private sectorregion and produces 400,000 tonnes social and environmental performance. Theyof soybean annually, a relatively provide the most comprehensive guidancesmall proportion of the world total. on what constitutes good business practice, and are the only ones that governments SIMAZORAN/ISTOCKPHOTO.COM have cooperated on and undertaken to promote. Worth celebrating? Second, the revised guidelines contain a number of new elements that reflect the responsibility” are not yet ready with “good changes in the business environment since the risk-based due diligence systems”. Beyond the previous revisions in 2000. These include a leaders, he says the mainstream has a lot to do section on human rights (largely reflecting “to implement the basics of responsible supply work by the UN secretary-general’s special chain management”. representative John Ruggie), the need to The OECD Watch network has welcomed exercise due diligence in supply chains, and the changes to the guidelines, but says the references to reducing and reporting on implementation procedures “fall short of greenhouse gas emissions. what is needed” to ensure that the guidelines are effective. Rather, the updated guidelines Multistakeholder input should have contained “investigative powers Third, the guidelines are important because they and the ability to impose some kind of sanction were the product of a multi-stakeholder process, when the guidelines are breached”. OECDSoy certification conundrum involving inputs from representatives of Watch says the National Contact Points will government, business, unions and NGOs. Given need to commit to resolve disputes andThe round table says its certification the difficulties some other intergovernmental help those adversely affected by companystandard “meets the global goals of processes have had in recent years – look at misconduct.sustainability”, but Greenpeace has the UN climate negotiations for example – Underlining this, Joris Oldenziel, acriticised it for promoting deforesta- the outcome for the OECD guidelines is most negotiator on behalf of OECD Watch, says he istion, and not distinguishing between welcome. going to wait and see “whether the update willgenetically modified and conven- OECD insiders are pleased about the make a real difference ”. ntional soybeans. n
  • 10. 10 Columnist: Mallen Baker Ethical Corporation • July-August 2011 EDSTOCK/ISTOCKPHOTO.COM Business success Why we need to fail more gracefully Mallen Baker explains why companies need to be free to make mistakes for ultimate success very successful endeavour is Maybe it’s the news media that E built on a history of failure. That is pretty much universally true is a key factor. You only have to listen to someone like John throughout human history. But we Humphrys on the BBC’s Today have become intolerant of failure – programme to see how relentlessly Learning from mistakes breeds high-flying success and that is a big problem. focused on finding someone to Prof Yotaro Hatamura at the blame some journalists have up with reasons why those names University of Tokyo is the founder, become. deserved to go. of all things, of the Association for If something goes wrong on Tony Hayward of BP comes to the Study of Failure. Rather handily, your watch, then if you’re in charge mind. Andy Hornby of HBOS is Tepco – owner of the Fukushima you should pay for it with your job. another. In another sphere, Sharon power plant – is a member. If you’re a CEO of a global Shoesmith of London’s Haringey He has set up a “failure knowl- company, and there’s a big accident Social Services. All of these were edge database” focusing on 1,175 you’ve got to go. Or if you get leaders who were respected by accidents and isolating whether two, God forbid even three, poor their peers before events made it they were caused by design flaws, quarters in a row. unacceptable to show them support human error, or changes in use that In the public in public. arose over time. It has identified Private benefits sphere, our For me that is a key defining that the latter element is a far more This is why privately run busi- response to feature. There are other leaders common factor in engineering nesses can, sometimes at least, who are well known by their peers failure than previously realised. provide the best model. Richard failure is almost to be arrogant, obnoxious, and And, of course, that is the point. Branson has failed many times – we guaranteed blind to factors that fall outside The reason for setting up such a only know about some of those their own ego. These leaders often database is the simple truth that if failures because he has talked about to breed more more directly create the circum- you don’t learn from failures, you them in his autobiographies. But he failure stances for their departure because will keep failing in pretty much the is known principally for his they demonstrate that it was their same way over and over again. successes. Of course he was free to own poor leadership that created In sport, we accept failure. Every learn from his failures and move the problem and they have no tennis player who wins one of the on. Nobody was in a position to capacity or humility for learning major tournaments and gains entry sack him when it happened. the lessons of failure. to the sport’s elite group of top He still had to learn, because if Step up Fred Goodwin. Say “hi” winners only got there having lost he hadn’t then sooner or later his Chuck Prince. This is not about hundreds of times. And after every businesses would have failed. excusing bad leadership. Some loss, the good ones would look at In the public sphere, our people do deserve to be kicked out. why they had lost, what they response to failure is almost guaran- And it’s not just about leaders – needed to add to their game, what teed to breed more failure. We take but the whole workforce. There’s a they needed to improve. a boss who has “failed” and cast TED talk by Sir Ken Robinson on Up and coming tennis youngsters them aside. The main criteria for education, where he identifies how are hungry to play the best players. their replacement is that they the lack of fear of failure is a key part Sure, they might fantasise about should be free from the taint of of what makes creativity possible. causing the big upset and rocketing failure themselves. So by definition, But it can’t be achieved if to fame in one single game. But more we put someone in position who holding businesses to account realistically, they know that by being hasn’t learned the lessons the hard means finding new vehicles for the beaten by the best players, they will way. blame culture. n learn exactly how they need to You might agree with the improve their game to achieve that contention that this is wrong in Mallen Baker is founder of Business Respect and level themselves. theory – but I bet if we start putting a contributing editor to Ethical Corporation. In business, and in civil society, names into the frame you will start COLUMNIST: we do not have such a culture. to instinctively and intuitively come MALLEN BAKER
  • 11. Briefing: private equity12 New sustainability champions?14 Case study: 3i16 Case study: KKR MARTIN MURÁNSKY/DREAMSTIME.COM
  • 12. 12 Briefing: private equity Ethical Corporation • July-August 2011 ALUXUM/ISTOCKPHOTO.COM Buyouts Have the uber-capitalists become agents for sustainability? By Mallen Baker The old view of private equity investors as ruthless asset strippers is due an update t wasn’t so long ago that private equity businesses management, business opportunities and growing Fixing an ESG I were classified by some as the “barbarians at the gate”. Rapacious capitalism at its worst, busily investor demand, with more than 330 asset managers signing up to the PRI. problem can be part of the value snapping up much-loved high street brands and There are many who say that, at least on the risk cynically stripping out everything that could not be management side of the equation, this is not such a creation process used to bump up short-term value before selling it new agenda for private equity. back into the market. Ludo Bammens, director of corporate affairs Then the era of cheap debt came to a close, and for KKR, says: “Environmental assessment has suddenly the flow of buy-outs dried up. The critical always been a part of the due diligence process. stories did likewise. Recent protests against Black- But in recent years it has become important to carry stone Group over the collapse of elderly care home this out in an increasingly thoughtful and profes- operator Southern Cross seemed almost nostalgic. sional way.” Things have moved on considerably. The private equity companies have begun to show some real Making choices changes on what the sector routinely describes as How much can ESG issues influence whether a ESG (that’s environmental, social and governance) private equity firm chooses to invest in a company? issues. And they have risen robustly to defend the It all depends on how material those issues are to sector’s business model against charges that it is whether or not the value of the company can be inherently bad for society. increased. Bammens says it can play a key part. In the wake of the financial crisis, the focus has Over the course of a year KKR will examine “a been on responsible investment, and the potential thousand potential investment opportunities”, of for ESG issues to become a significant factor in real- which only 2% will actually go forward. The ising the value of investments. company’s ESG diligence team reviews all the At the launch of the UN Principles for Respon- investment proposals as part of a filtering process. sible Investment (PRI) in 2009 at a private equity Simon Havers, chief executive of Baird Capital industry conference in London, a survey showed Europe, says there is a simple two-part test that that 71% of the attendees agreed that ESG factors Baird will apply to a prospective investment. “First, could affect the sale price of a company at exit. This is the company’s reputation irremediably shot? reflected a considerable change in attitude over a Second, is it in our capability to solve it? We would short period. avoid prospects that have the wrong answer to The British Private Equity and Venture Capital either of those two.” Association (BVCA), which conducted the survey, The test allows for the fact that a smart private identifies a number of drivers for responsible invest- equity investor can use the process of fixing an ESG ment among its members. These include risk problem as part of the process of value creation.
  • 13. Ethical Corporation • July-August 2011 Briefing: private equity 13 FOODANDWINEPHOTOGRAPHY/ISTOCKPHOTO.COM Baird demonstrated this when it bought PaddockHoldings from its founder in 2006. Baird was inter-ested in the company because it saw that it was“operationally undermanaged”. This included apretty poor health and safety record. Paddock hadform both on non-reportable accidents (relativelyminor) of which it had significant numbers, andreportable accidents (major). During Baird’s ownership, substantial changeswere made, including putting in a more effectiveoperations director. Non-reportable accidents werecut by two-thirds. No reportable accidents tookplace during the course of Baird’s ownership. When Paddock Holdings was sold by Baird in2010, it had shown a 2.7-fold return on investment.That would certainly have been lower had it been acompany still showing poor compliance on healthand safety. Indeed, given that the buyer wasSwedish multinational Assa Abloy – a company thatvalues its own corporate reputation – it might nothave been sold at all. Doughty Hanson focused particularly on envi-ronmental improvements when it took overSpanish bus and transport company Avanza in 2007. Cutting accidents adds corporate value
  • 14. 14 Briefing: private equity Ethical Corporation • July-August 2011 IMAGESBYTRISTA/ISTOCKPHOTO.COM Case study – 3i’s activist approach 3i has focused on the social responsibility and environmental agenda for a long time. Nevertheless, the issues have gained prominence in the past few years. The company was formed just after the second world war, and from the start it framed its mission in terms of the social value of helping companies to grow. It developed a strong corporate culture and set of values – to the degree that it was behaving in some ways more like a listed company (for instance, in its reporting and disclosure) even before it eventually chose to go public in 1994. Patrick Dunne, 3i’s communications director, recalls this from his arrival at the company 25 years ago. “When I joined back in 1985, one of the first things I remember was being taught about the values of the firm and how we do business.” Dunne believes that the company’s listed status has been a factor. “One of the benefits of being a FTSE 100 company since 1994 has been that we have learned from our peers in other sectors, particularly through membership of organisations like Business in the Community, of which we were a founding member.” 3i has an activist approach that means it is very engaged in what responsible business practice means at every phase of the investment cycle. It encompasses initial fundraising, investment decisions, stewardship of portfolio companies once investment has taken place, and then the final exit. In particular, when 3i is looking at investment decisions it explicitly builds in an assessment of corporate responsibility issues – with an option to pull the investment if the management team seems unable to achieve compliance with 3i’s standards in a reasonable time. That said, Dunne says that often 3i’s reputation means the issue does not even arise. He says: “It has been a deliberate part of 3i marketing to be clear about the high standards we expect in corporate responsibility and governance. It becomes self-filtering, Success comes from good management practices as companies will often only approach us for investment because they are confident that they match up to those criteria.” companies obviously varies depending on the percentage stake Once the investment has taken place, formal portfolio reviews we own, but we have an energetic approach to engagement and take place every six months, which will include environmental, sharing best practice.” social and governance issues. As well as engaging its portfolio companies, 3i also focuses on its The company encourages sharing lessons learnt across the own performance as a corporate entity. It has an active carbon portfolio. Dunne says: “If you go through the full cycle of invest- reduction programme for its own operations, builds environmental ment we are actively engaged on being clear what responsible considerations into its procurement policies, and is a founding practice is. The degree of influence we have with portfolio sponsor of the European Venture Philanthropy Association. It carried out a review that identified a range of investments for deal-breaking problems, towards impacts related to fuel efficiency and climate recognising how ESG issues can be a driver of value in change, as well as water conservation, land impacts, the portfolio businesses of private equity companies. and health and safety issues. Havers says this has become more significant in Working with the management board, it devel- recent years. “There is a raised level of awareness oped a plan covering investment in a new, modern that attending to sustainability issues is good for the fleet of vehicles with much more efficient engines, profits of the portfolio company,” he says. better fuel management overall and reductions in Tom Rotherham, associate director private equity waste generation and water use. for Hermes Fund Managers, agrees. He says: These cases demonstrate how things have moved “General partners should be willing to consider on from a due diligence process of screening potential whether there is a value-creation angle in this, not
  • 15. Ethical Corporation • July-August 2011 Briefing: private equity 15just risk management. If that happens, then the make sure that ESG gets attention at the board level The mainprivate equity community can take ownership of of portfolio companies. If you have this, thenthe ESG agenda rather than having it thrust upon “action will cascade down”. responsibility forthem. If not, some investors will conclude that Others have taken more of an activist approach. the private equitygeneral partners need regular oversight.” General 3i, for instance, has mapped out the full investment company is topartners are the investment professionals who process and developed a clear approach to what itmanage a private equity firm, as opposed to invest- expects. 3i communications director Patrick Dunne make sure thement partners who don’t have an executive role. says: “The degree of influence we have with port- governance is folio companies obviously varies depending on theEffective oversight percentage stake we own, but we have an energetic rightBut Rotherham has a few words of caution to add approach to engagement and sharing best practice.”about how far the private equity owners should Sharing best practice among the wider portfolio oftake things. He says there is a risk that general owned companies is also the approach practised bypartners draw the wrong conclusion and think they KKR, which has its “green portfolio”. With theseneed to do all the ESG work themselves. Rather, it companies, it works to select key practices for improve-should be the portfolio company management ment, establish targets and develop action plans.where ESG is managed. “General partners just need But all this activity around ESG issues would still,to make sure it’s being done effectively,” says arguably, be only window dressing if those earlyRotherham. In other words, board effectiveness is criticisms that the private equity business model isreally the key area of focus. somehow inherently unsustainable were shown to Simon Havers agrees, and says the main respon- be valid. If it is really the case that the mission ofsibility for the private equity company is to make private equity is the enrichment of the few bysure the governance is right. He argues that private loading businesses with unsustainable debt, that is aequity companies need to have systems in place to serious problem. Corporate Governance and Business Ethics Corporate governance and business ethics are areas of rapidly growing importance in which Birkbeck has a pre-eminent research position. Our courses are designed for those wishing to engage Apply now critically with the issues of business and society, and be involved The School of Business, Economics professionally in corporate governance. and Informatics has a wide range Course teaching in management, business organisation, strategy and of undergraduate and postgraduate research methods is underpinned by the work of the London Centre for courses available to start Corporate Governance and Ethics, a leading centre for research and October 2011. policy advice. For further details visit: MSc Corporate Governance and Business Ethics MSc Management with Corporate Governance prospective-students PG Cert in Corporate Governance and Business Ethics MRes Corporate Governance and Business Ethics Birkbeck offers prestigious, internationally recognised University of highest quality. For further details email 020 7631 6689 London’s evening university
  • 16. 16 Briefing: private equity Ethical Corporation • July-August 2011 TONY BAGGETT/ISTOCKPHOTO.COM Case study: KKR’s value-driven approach If there is any single private equity company that could be described as a sustainability leader, it is probably KKR. The company attracted attention in dramatic fashion in 2007 when it bought the Texas-based energy supplier TXU and promptly announced that it would be scrapping all but three of the 11 new coal-fired power stations that had been planned, investing instead in wind power alternatives. KKR founding partner Henry Kravitz said at the time: “We have developed a new vision with management of how we can turn TXU into a more innovative, customer-centric, environmentally friendly company.” It was the moment when NGOs such as Environmental Defence switched from being combatants to being partners. For KKR, it was still an equation about value. It hadn’t suddenly caught tree-hugging fever. The company had accepted the arguments about big changes coming in how climate change would affect energy production – at a time when few in the US wanted to hear that message. Now KKR has distinguished itself further by taking an active management approach to a broader range of its portfolio compa- nies. It has become one of the few private equity companies to produce an environmental, social and governance report. It also has a “green portfolio” website that details the work it A trusted UK brand in private hands has done on a number of its companies. It provides a set of analytical tools to help portfolio companies assess and track falling into private ownership – and many observers were improvements and use the website to report progress. wondering whether such deals would mean an end to those To date, it estimates that the green portfolio initiative has companies’ corporate responsibility and sustainability saved 345,000 tonnes of carbon, reduced waste by 1.2m tonnes programmes. and, most importantly from the point of view of some investors, Richard Ellis, CSR director at Alliance Boots, says this defi- saved $160m in costs. nitely was not the case with KKR. “Before the acquisition, I When the company chooses to make an investment, it personally assumed there was huge scepticism in the private develops a 100-day plan on key goals to realise the value of the equity world on this agenda. But since then, I have found that so investment. If ESG issues are identified as being important in long as you’re able to treat sustainability as a normal business driving value, they are built into the planning process at this stage. discipline, these are very smart people who get it.” For instance, according to KKR’s ESG report, the 100-day plan Ellis says the move into private equity ownership has resulted for its investment in Oriental Brewery included programmes to in no change to Alliance Boots’ corporate responsibility reduce energy use and greenhouse gas emissions. programmes. KKR, he argues, sees the long-term value of sound One of the defining moments for KKR came when it acquired management of this area. He says: “I think the Boots example has a 50% stake in Alliance Boots. At that time, the availability of been influential, with KKR committed to sharing best practice cheap credit was seeing a number of such well-known names across its portfolio companies.” This version of what private equity is all about is of CSR for pharmacy giant Alliance Boots, viewing dismissed by many practitioners as a caricature. the relationship through the other end of the tele- Ludo Bammens says KKR’s ownership model scope. “It is easier to do some of these things with actually has a number of real pluses from the point private equity than with a plc,” he says. This means of view of sustainability. the company can look to the longer term and “First, it is a model for active ownership. We can doesn’t need to be worried about shareholder divi- drive a topic effectively,” he says. “Second, it is dends. actually more long term. We hold companies on One former chief executive of a top plc who average for seven years, which gives you time to subsequently moved into private equity says the really do something. Third, we have a large port- equation is not a simple one. “You definitely have folio of companies and that gives us the opportunity more freedom to act under private equity owner- to build a community of best practice. So what’s ship,” he says. For instance, companies can take a learned – for instance – within Alliance Boots can be shorter term hit in order to create value in ways that shared with the rest.” plc cannot. And as the private equity company is His message is echoed by Richard Ellis, director looking to sell the business at a profit, if it’s sitting
  • 17. Ethical Corporation • July-August 2011 Briefing: private equity 17 GASPR13/ISTOCKPHOTO.COM Goin’ fishin’ How far can companies really push the boat out on sustainability once they join the port- folio of a private equity firm? At a time when the viability of fish stocks is a serious global question, it seems that the answer is “all the way”. On the one hand there is Carlyle Group. When it bought China Fishery Group – one of the world’s largest fishing companies, its due diligence process highlighted concerns around the viability of fish stocks in the future. As a result, it committed to a full scale review of the sustainability of the fish stocks upon which the company depended, and its current compli- ance with fishery quotas and other regulations. More significantly, it looked at how the company could play its part in advancing the Marine Stewardship Council certification process for relevant fisheries in its sphere of influence. China Fishery has now formed a corporate social responsibility committee, with external figures associated with sustainability issues as they relate to the marine environment. Carlyle is not the only private equity firm to face up to the challenge. When Birds Eye Iglo was bought in 2006 by Permira from previous owner Unilever, it was in difficult times. It hailed from a non-strategic part of Unilever’s Less cod, more pollock empire, and had been allowed to lose direction. It had some track record on sustainability – having been taken a lot further. involved in the initiation of the Marine Stewardship Council – but Under the banner of Forever Food, Birds Eye has embarked on had come under fire from Greenpeace for sourcing some of its an environmental programme of considerable ambition, covering cod from the Baltic, where the legality of supplies could not be areas such as climate change, sustainable sourcing, waste, water assured. and packaging. Glenn says the Forever Food brand takes a long- But perhaps closer to the top of Permira’s priorities was the standing commitment and seeks to give reassurance to fact that the company was under-invested, losing money and customers. It has been developed in partnership with NGOs launching 70 new products a year of which only one or two including WWF. would survive. Former Walkers marketing director Martin Glenn Birds Eye has appointed a head of sustainability to make sure was installed to turn things around. That meant cutting costs, the programme stays on track. closing factories and throwing the poor quality brands overboard. It is likely that Birds Eye Iglo will be floated back onto the What was not jettisoned, however, was the company’s market again in the not too distant future. Improving the sustain- commitment to sustainability. An early commitment was to ability of the product roster is something that new shareholders reduce the amount of cod in fish fingers, replacing it with more will want to see. And that in itself is a sign of just how important sustainable species such as pollock. This approach is now being such factors have become.on serious risk, then it won’t be able to do this. market they find people don’t much value the social“Environmental risk is now a big deal,” the former and environmental aspects, then they won’t, either.”plc head says. It will take society showing that it values the right But for all the action by some of the big names, things, before private equity companies will respond.this former chief executive believes we are still near How much difference did the financial crisisthe beginning on the journey. He argues that sustain- make? He says there has been something of a mindsetability is not high up the agenda for the vast majority change. “Private equity companies now need toof the private equity industry. “They will focus on deliver real business improvement, not just apparentanything they see as genuinely driving financial improvement. Flipping quickly is not happening.”value but if, at the point of floating back onto the Tom Rotherham notes the same phenomenon,
  • 18. 18 Briefing: private equity Ethical Corporation • July-August 2011 ARSENIK/ISTOCKPHOTO.COM KKR’s aim is to integrate ESG thinking into the sector investment teams The financial crisis changed minds highlighting that at the point when the flow of debt and renewable energy. This will come about dried up, private equity companies started holding through smart “market spotting” rather than a on to portfolio companies longer. They increased values-based conviction for “doing the right thing”. the number of operational people they hired and, But Ludo Bammens says it has to be applied to all Rotherham believes, the focus returned to building sectors. “Sustainability has to be mainstreamed better companies. through your portfolio. It isn’t just about making specific investments, for instance, in clean tech,” Operational improvements he says. He suggests that there is “an inverse relationship With this in mind, he sees part of KKR’s next between the cost of debt and the amount of effort challenge as being to get the issues out from the sole general partners make on operational improve- ownership of compliance teams. KKR’s aim is to ments in their portfolio companies. When debt integrate ESG thinking into the sector investment returns, it is not clear why focus won’t once again teams so it is “fully a part of their own thinking and drift away from operational improvements.” not something that is purely the realm of the dili- His conclusion is a sobering one. “Did we learn gence team”, Bammens says. the lessons of the crisis? When it comes to perma- But there are big questions still on the horizon. nent change in how companies operate, the answer One former senior head within a private equity has to be no.” company sounds a pretty big alarm bell. Simon Havers believes that at least one relevant He believes that from an overall corporate respon- point has been picked up. “The lessons have been sibility point of view, people are going to increasingly learned that when the storms hit you need to have ask whether the societal value these businesses create made lots of friends before.” And private equity is going to too few people. He expects people’s stan- companies are starting to talk about stakeholders in dards of living will continue to decline, because “we ways they hadn’t previously. built our wealth on the backs of foreign resources and So, what are the trends for the future? More labour in a way which can no longer be done.” integration. This will mean that the questions about the huge There will certainly be more instances of private incomes of a few will get tougher. Needless to say, equity companies putting their bets on some of the that is one issue that private equity is not going to technologies of the future, clean tech companies address voluntarily. n
  • 19. Ethical Corporation • July-August 2011 Columnist: Peter Knight 19 BRAINSIL/ISTOCKPHOTO.COMEffective actionWe can’t save the worldone drop at a timeA misguided view of the power of the individual means effectiveenvironmental activism has been all but abandoned in the US,says Peter Knight hen a 21-year-old was caught laxer environmental regulation.W on camera peeing into a lakenear Portland, Oregon, he could not The environmental movement of the Silent Spring in the 1960s andhave imagined the consequences. 1970s understood the power of Because the water is so pure, the group political action. Well-organ- Better shopping is not the answerlake feeds directly into Portland’s ised campaigners, well connected indrinking supply without need for Washington, brought about some of The belief in the political powertreatment. So shocked were the city the most far-reaching environ- of individual action is built on thefathers that they ordered the imme- mental legislation ever passed, such deluded notion that a lot ofdiate flushing of the 8m-gallon as the Clean Air Act, which removed personal acts will bring about large-reservoir. lead and other nasties from the air. scale structural change. This conceit For some, this startling story But then the environmental is epitomised in the notion of greendemonstrates the power of the indi- lobby went to sleep, allowing subse- consumerism. All you have to do isvidual to bring about change – quent regimes in Washington – buy enough recycled lavatorysmall actions, big consequences. mostly conservative throughout the paper and the world will turn into Individual rather than group double Bush era – to soften envi- the Jehovah Witness version ofpolitical action dominates what ronmental laws at the behest of the In polite society, heaven with gambolling lions andpasses for environmental activism influential industrial dinosaurs. one does not forever Environmental groups have mention It is indisputably good thatall but abandoned a push for better Going backwards lavatory cleaners are reformulatedpolicies in preference for encour- The backpedalling has taken on a environment and rubber gloves come with FSCaging their supporters to pursue surreal quality, where the Environ- and policy in approval, but no amount of eco-futile personal green efforts, aided mental Protection Agency – the labels and fair-traders are going toand abetted by marketers flogging enforcer – has been cast as a villain, the same breath bring about the fundamentalsupposedly green goods. restricting America’s ability to changes needed to deal with loss of People honestly believe that we compete with China and other biodiversity and climate change.will somehow avoid climate change heavy polluters. Republicans are We cannot shop our way out ofby using solar-powered chargers for doing their utmost to emasculate trouble.our iPhones, or fitting LED light the agency and turn back the clock. I blame those wimpy environ-bulbs, or boycotting bottled water. And they are succeeding. Climate mental groups that fail to leverageA deep belief in the individual change and anything vaguely envi- the personal commitment of theirrather than group political action ronmental has been banished from supporters into effective politicalhas spawned the campaigning the political agenda. action. Most environmental groupsclichés that now echo off websites, At the same time – and probably have lost their connection to theirblogs and tweets. Changing the as a consequence – we have seen the supporters after growing flabby onworld, one lightbulb at a time. rise in the belief of the power of one. foundation grants, corporate spon- This country runs on political I sat through a “debate” on climate sorship and industry “partnerships”patronage bought in Washington change in the Harvard Club in New (another name for co-option).DC. If you want to get anything York City recently where the discus- Dinosaur politicians love thedone you have to spend a lot of sion centred on how a hotel group idea of personal rather than polit-time and money buying the favours was fighting climate change by ical action because it removesof politicians who write the policies. installing highly subsidised LED opposition and acts as an opiate forCompared with the murky politics light bulbs. the green masses. They know thatof the UK, the US political system is When asked about the need for personal action has the potency ofremarkably transparent and, policy changes to encourage energy pissing in the lake. nmostly, the deepest pockets win. efficiency, there were nervous coughsIndustrialists spend heavily to from the panel. In polite society, one Peter Knight is president of Context America.ensure the right economic climate, does not mention environment and COLUMNIST: peter@contextamerica.comsuch as generous tax breaks and policy in the same breath. PETER KNIGHT
  • 20. 20 CRwatch Ethical Corporation • July-August 2011 CRwatch By Jeni Bauser in New York Barbie’s Ken puts his foot down, footwear worker rights safeguarded in Indonesia and Facebook’s challenges in China New protocol protects sign the agreement. Mattel’s Barbie sent packing factory workers “The protocol is an achievement, Barbie is getting dumped over her packaging. Greenpeace recently In what’s being hailed a “historic” but it will require much effort from launched a bold viral campaign against Mattel, the world’s largest toy advance, a group of Indonesian trade each party to ensure that it is truly manufacturer and maker of Barbie, showing Ken in tears as he learns that unions, supplier factories and mega implemented in the factories,” Merk Barbie’s packaging purportedly includes pulp sourced from Asia Pulp sportswear brands including Nike, says. “We will need to evaluate the Paper. APP has repeatedly been lambasted for clearing Indonesia’s rain- Puma and Adidas have come impact at a later stage.” forests and peat swamp forests, threatening endangered species and the together to sign a pact that safeguards The agreement came out of a Play environment. workers’ right to freedom of associa- Fair meeting in 2008 with the sports- Greenpeace had Barbie’s packaging independently tested and discov- tion in Indonesian factories. wear companies after the Beijing ered the presence of MTH – mixed tropical hardwood. According to A recent report by the Interna- Olympics. Play Fair is a global Greenpeace, there are only two pulp producers in Indonesia that use MTH, tional Textile, Garment and Leather campaign comprising international namely APP and Asia Pacific Resources International Limited, but the latter Workers’ Federation has found that trade union federations and NGOs to does not produce packaging materials in Indonesia, thus “suggesting that while most of the 18 Indonesian persuade all sportswear brands to APP is the predominant producer of any packaging material with MTH factories surveyed have union repre- protect workers’ rights throughout the content”. sentation, all have in some way supply chain. Mattel has quickly responded to the campaign, stating that it does not stymied union activity, including contract directly with Sinar Mas/APP. “We purchase packaging materials denying space to organise, setting Facebook and freedom from a variety of suppliers and it is not the normal course of business to exceedingly high production targets in China dictate where suppliers source materials,” Mattel says. “That said, we have so workers have little to no time to As rumours abound regarding directed our packaging suppliers to stop sourcing pulp from Sinar Mas/APP as complete union duties, and refusing Facebook’s possible entry into China, we investigate the deforestation allegations.” to engage with trade union represen- Human Rights Watch has sent a APP has also called on Greenpeace to reveal its scientific analysis, saying: tatives. letter to Facebook chief executive “If the group has identified any specific illegal fibre in the products it “Working conditions remain very Mark Zuckerberg asking the social poor in the global garment industry,” networking giant to outline the DAVID MCNEW/GREENPEACE says Jeroen Merk of the Clean Clothes policies it has or would create to Campaign. “Nearly everywhere, protect users’ freedom of expression workers face huge barriers when they and privacy. seek to organise, while wages are The letter was also prompted by failing the ‘meeting living wage’ recent disquieting comments made by standards.” Facebook lobbyist Adam Conner, who According to Merk, what makes ELDADCARIN/ISTOCKPHOTO.COM this agreement particularly significant is the leadership role assumed by the five participating Indonesian unions. “In contrast, most CSR approaches marginalise the role workers play in the attempts supposedly designed to improve their situation,” Merk says. “The protocol … represents a much- What will Beijing allow? needed move away from the managerial, top-down approaches said to the Wall Street Journal: “We still advocated by the majority of are occasionally held in uncomfort- global sourcing companies. Such able positions because now we’re direct engagement could help bring allowing too much, maybe, free Barbie’s shame exposed CSR programmes more into line with speech in countries that haven’t local priorities of workers.” experienced it before.” analysed, we want to know what it is because of our zero tolerance for Other large manufacturers and There has also been talk about illegal wood.” brands including Pentland and New Facebook partnering with the top Greenpeace’s campaign against Mattel is part of a larger initiative aimed Balance participated in the negotia- Chinese search engine, at all toy manufacturers including Lego, Disney and Hasbro to stop using tions, and there is hope that which HRW says heavily censors rainforest-derived packaging products. manufacturers beyond sportswear content. makers and their suppliers will soon “The entry of Facebook into China
  • 21. Ethical Corporation • July-August 2011 CRwatch 21could be an opportunity for Chinese initiative to persuade mutual fundsusers to exercise their rights online,” McDonald’s urged to halt advertising to kids and other investment firms to commitsays Arvind Ganesan of HRW. “But In an open letter to McDonald’s chief executive Jim Skinner published in to genocide-free investing.unless Facebook protects their rights, several American city newspapers, more than 550 healthcare professionals While IAG has historicallythe Chinese government is likely to and institutions challenged the fast food giant to stop marketing to children. approached individual mutual funds,censor content and try to get infor- The ad campaign comes on the heels of significant new guidelines JPMorgan Chase was considered anmation on users who are critical of proposed by the US Federal Trade Commission (FTC), which would clamp appropriate target for IAG’s firstthe government.” down on how food can be marketed to young people. DAVID SNYDER/DREAMSTIME.COM If Facebook opts to enter the The petition is part of the ongoing efforts led by public interest advocacyChinese market, HRW wants it to group Corporate Accountability International (CAI), which launched its Valueoutline clearly the human rights (The) Meal Campaign in 2009, demanding that the entire fast food industryprocedures it will uphold to protect discloses detailed information about the health risks of fast food, improveusers in China and worldwide, the nutritional value of their food, and pay for the mounting healthcareincluding the terms of any possible costs resulting from diet-related diseases, among other things.partnership with Baidu, how it will According to CAI, another major motivation behind health professionals’prevent the Chinese government support for this campaign is McDonald’s “historic giving to health-relatedfrom domestically and globally charities to quiet criticism of its contributions to today’s public health PetroChina has questions to answercensoring the site, and how it will crisis”. about Darfurprotect government critics’ personal McDonald’s has so far responded to CAI’s letter with a statement, whichinformation. reads: “We are committed to responsible advertising and take our commu- shareholder proposal to a corpora- By late June, HRW had yet to nications to children very seriously. We understand the importance of tion, “given its high public profile,receive a formal response from the millions of consumers in its retail JODIJACOBSON/ISTOCKPHOTO.COMFacebook but had a meeting sched- banking and credit card businesses,uled in the coming weeks. and its very large holdings in PetroChina,” says Eric Cohen, IAG’sNew PPP supports Latin co-founder and chairman.American recyclers In Proposal 10 IAG points toAn ambitious $8.4m public-private JPMorgan’s $1.3bn worth of shares inpartnership is under way in Latin PetroChina, which it says is interna-America to help assimilate the four tionally recognised as the worstmillion people whose livelihoods offender in funding the Sudandepend on recycling into the official government’s genocide in Darfur.recycling system. The bank sought to keep the The initiative is led by the Multi- proposal off the 2012 proxy ballot,lateral Investment Fund (MIF), the stating: “While we share the propo-Water and Sanitation Division of the nents’ concern about human rightsInter-American Development Bank generally and about genocide in(IDB), Fundación Avina, the Bill particular, we believe that the firm’sMelinda Gates Foundation, and Easy targets? existing policies and proceduresCoca-Cola. appropriately address these issues.” According to Estrella Peinado-Vara children’s health and nutrition, and are committed to being part of the The company said it doesn’t doat the IDB, despite the tremendous dialogue and solution.” business with companies legallyimpact informal collectors have on the To no great surprise, CAI isn’t buying it. Still, despite the uphill battle identified as directing or contributingrecycling market – in some cases, being waged, CAI says there is still hope for corporations such as McDonald’s to violence in Sudan.reclaiming 90% of recycled consumer to change its modus operandi by improving the health of its food and Nonetheless, the bank’s requestproduct materials – they are often curbing advertising to kids. was rejected by the US Securities andsidelined from the value chain, leaving Exchange Commission.few socio-economic opportunities. “We hope that the voting at The Regional Initiative for development of sustainable communi- Genocide-free JPMorgan Chase’s annual meetingInclusive Recycling will therefore ties in two areas of particular investment will cause JPMorgan Chase to recon-connect recyclers, consumer products relevance: social and economic inclu- A shareholder proposal asking sider its opposition to adopting acompanies, municipalities, educators sion of people living under very JPMorgan Chase to adopt a policy of avoiding investments tied toand civil society groups to create a adverse conditions, and environmental genocide-free investment policy genocide,” says Cohen. “If not, wesystem that builds on lessons learned protection,” says José Octavio Reyes, grabbed 7.69% of the vote at a recent will bring genocide-free investingfrom similar projects in developing president of Coca-Cola Latin America. shareholder meeting – backing that is forward for consideration at nextregions, and effectively integrate “This programme also contributes to high enough for it to be added to the year’s annual meeting, knowing thatinformal workers into local value our vision of ‘zero waste’ for our pack- proxy ballot at JPMorgan Chase’s 2012 overwhelmingly, Americans, oncechains. aging, where increased use of recycled annual meeting. they become aware, do not want “This programme provides us with materials in our bottles constitutes a Proposal 10 is led by Investors their pensions and family savingsthe opportunity to contribute to the central part of this vision.” Against Genocide (IAG), a citizen-led connected to genocide.” n
  • 22. 22 Columnist: Paul French Ethical Corporation • July-August 2011 SAMXMEG/ISTOCKPHOTO.COM China column China’s manufacturers are going nowhere fast Paul French, China editor, argues that demographics and costs appear to be conspiring against China’s world-dominating manufacturing sector. But then again… very rare thing has happened – featured many times in this column, A for once the Chinese govern- ment’s own statistics agree with raised wages by up to 100% in 2010 after the bad publicity that followed everyone else’s. a spate of worker suicides. This year, on average, minimum In the face of this publicity, a Affluence makes for more consumers wages across all of China have risen share price collapse of 20%, massive by about 20% year-on-year. With wage rises and increases in input and close to the best regional retail food prices and general living costs and energy costs, where is Foxconn market. continuing to soar, at least wage now, a year later? Actually, it’s not India may have the demo- rises will help. doing too badly. graphic advantage in future and a Demographics are a challenge In May this year, Foxconn’s population set to overtake China’s, for China. The population is getting shares jumped as much as 15% in but India’s total retail sales this year older, and the available pool of one day, their biggest daily gain in will be, optimistically, $396bn; young workers getting smaller. more than a year. Why? Because of China’s retail sales this April alone According to data just released from surging global demand for iPhones, were, conservatively, $210bn. the 2010 nationwide census, iPads, iPods plus all the gadgets Nobody’s moving to India to get China’s population under 16 now Foxconn’s other clients – including Higher paid closer to the customer. makes up just 16.6% of the total, Sony, HP Amazon, Nokia, Motorola, , workers are a down from 23% in 2000. The Nintendo, Microsoft, Dell and Cisco growing Staying put proportion of people aged over 60 – are selling to you. Chinese manufacturers may move has increased from 10.4% in 2000 to And wages are the least of customer base inland to save money on land, rent 13.3% in 2010. Chinese manufacturers’ worries. In for all those and supply chain costs but they So is this the end of China as the the crucial technology sector, aren’t likely to flee to Bangladesh or centre of low cost manufacturing? encompassing everything from gadgets they’re Vietnam when their single largest Certainly some looking at these iPads to car catalytic converters, churning out concentration of growing sales is numbers are quick to talk about wages represent just 5% of the total right at home in China. And there’s south Asia, or other parts of the cost of goods sold, while raw still massive potential locally – Asean (Association of Southeast materials account for more than those tech manufacturers may be Asian Nations) region with more 90% of costs. paying higher wages but they’re youthful demographics, supplanting This is why so far this year you’ll operating in a market that still only China. Certainly, India has lower have read more articles on rare has 17% penetration for computers wages and better demographics for a earth metals in China than real and 62% for mobile phones. Those mass-based low-paid workforce. wages in China over your morning higher paid workers are now a But I think India will probably muesli. Demographics are a growing customer base for all those not take over from China in this problem, but right now those rare gadgets they’re churning out. regard. earths remain rarer than warm Admittedly China’s more raw bodies willing to clock in for the hinterland cities, and relatively Higher wages in place night shift. poor countryside, are not yet Here’s why. Only 9.5% of China’s The other side to all this is that bouncing along to the beats from workforce actually receives the Beijing appears happy enough to Apple iPods or keeping fit with minimum salary these days. Most see wages rise – indeed Beijing has Wii Virtua Tennis but they are now get more and have done for to sign off on all minimum wage starting to see laptops and other some time. The average manufac- rises. Rising pay, and a stronger gadgets appear in large numbers … turing salary is 2.6 times higher Chinese currency generally, mean a and that’s keeping them close to than the minimum wage. Conse- strengthening domestic Chinese home. n quently many employers have got retail market for everything from used to paying higher wages and pak choi to BMWs. More local sales Paul French has been based in China for more have largely already factored it in. reincentivise domestic manufac- COLUMNIST: than 20 years, and is a partner in the research Foxconn, a company that has turers to keep their factories local PAUL FRENCH publisher Access Asia.
  • 23. Country briefing: Switzerland 25 Low tax environment 28 Discreet advantage 29 World’s NGO centre 30 Government sets the pace ZMEEL/ISTOCKPHOTO.COMOverviewPrecision engineered business stabilityBy Stephen GardnerThe Swiss approach to corporate social responsibility reflects national traditions of neutralityand discretion ll nations like to believe they are distinct, but the Mach says. “This can be linked to a tradition ofA Swiss are more distinct than most. Theycertainly stand out in terms of wealth, having the stability.” However, stability can also mean conservatismhighest per capita income in Europe after Luxem- and resistance to new ideas. “For a long time webourg and oil-rich Norway. have done it this way, so why should we do it There is even a term for Switzerland’s concept of another way? That is something you hear quiteits own distinctiveness: Sonderfall Schweiz, or often here,” Mach says.“special case”. This embraces the idea that Switzer- Swiss neutrality also has pros and cons for corpo- There is an imageland is a place apart: a land of lofty mountains and rate thinking. From a corporate responsibility pointclean air and water, which keeps itself separate from of view, it means there is an emphasis on human of Switzerlandthe conflicts of its neighbours, and as a consequence rights and conflict resolution. The world’s best- that equatesis stable and unchanging. known humanitarian agency, the Red Cross, is a Antoine Mach, co-founder of Swiss corporate Swiss invention. Its international committee neutrality withresponsibility researchers Covalence, says the idea features a former secretary to the board of Swiss complacency andof Switzerland’s specialness underpins its business food multinational Nestlé and the current chairman the accruing ofculture, and influences the Swiss approach to of Swiss concrete giant Holcim. A number of leadingcorporate responsibility. The defining characteristics Swiss companies donate substantial sums to the wealthare stability, neutrality and modesty. Red Cross through a corporate support group set up Often, these qualities have a positive influence in 2005.on Swiss companies’ strategies, but not always. But neutrality can also mean passiveness andStability, for example, means a well-regulated “business as usual while others are fighting orbusiness environment with high environmental and suffering”, according to Mach. There is an image ofworkplace-safety standards. It gives firms Switzerland that equates neutrality with compla-predictability. Swiss companies tend to go through cency and the accruing of wealth. “CSR calls forfewer and less dramatic cycles of job cuts and down- action and engagement; it is not very compatiblesizing that their American or British counterparts, with neutrality,” Mach adds.
  • 24. 24 Country briefing: Switzerland Ethical Corporation • July-August 2011 Swiss modesty, meanwhile, causes problems when Switzerland has learned to react quickly when its Switzerland has caution and discretion develop into secrecy. Switzer- probity is questioned. In 2009, the Organisation for land’s ethical Achilles’ heel is its reputation as a place Economic Co-operation and Development placed it learned to react where money can be hidden with no questions asked. on a “grey list” of tax havens, a move that led to a quickly when A cliché persists of Swiss bank vaults stuffed with flurry of lobbying and reform by the Swiss govern- its probity is Nazi gold and other ill-gotten gains, though experts ment. Switzerland was removed from the list after say this is exaggerated in foreign eyes. six months. questioned Swiss corporations have also learned to respond More open more effectively to criticism. Antoine Mach says “Swiss banking secrecy is often misunderstood as a Swiss modesty can be a benefit because “corporate total secrecy and that is not at all the case,” says responsibility communication that is modest and Christoph Stückelberger, director and founder of discreet can be more credible”. But there is a balance, a Swiss ethics research and to be struck. Swiss corporations should not interpret networking group. “A lot has improved in the last the Sonderfall Schweiz concept to mean that they five to 10 years. Swiss anti-money-laundering legis- do not have to justify their actions. lation has been strengthened [to be] one of the The classic example of this was the long-running strongest in the world.” controversy over Nestlé’s marketing of baby milk Jean-Pierre Méan, president of the Swiss chapter formula in developing countries. Nestlé was of the international non-profit group Transparency accused of putting profits before the health of International, agrees. “There is very little left, if mothers and infants, and handled the resulting anything,” of Switzerland’s notorious banking controversy badly. The company took “an arrogant secrecy, he says. The Swiss have worked to move position”, says Mach. “They did not understand that beyond their ingrained Calvinist belief that “money they had to explain about their impact. But now is good as long as you don’t show it”. they have understood.” n Switzerland factsheet Corporate responsibility statistics: Socio-economic statistics Ethical Corporation survey results Population:..................7.64 million (2011 estimate) GDP: ..........................$324.5bn (PPP 2010 estimate) Focus of CSR/sustainability Guidelines and initiatives most used GDP per capita: ........$42,600 (PPP 2010 estimate) 1. Reporting Global Reporting Initiative Human Development Index: ....0.874 (13th / 169) 2. Partnerships and collaboration ISO series 3. Performance measurement OECD Guidelines Current leadership President of the Swiss sustainability leaders most mentioned Guideline and standards statistics Swiss Confederation: ........ Micheline Calmy-Rey Novartis Type: .................................................. Federal republic Nestlé GRI reports in 2010 ........................................................50 Import partners Foreign sustainability leaders most mentioned DJSI Europe listing ..........................................................10 Germany ..........................................................27.0% Novo Nordisk Global Compact participants ........................................83 Italy ..................................................................10.0% Ikea UNPRI signatories ............................................................47 United States ......................................................9.6% References: Export partners • Socio-economic statistics obtained from recent publications from the CIA Factbook and the Human Germany ..........................................................27.0% Development Index. United States ......................................................9.1% • Corporate responsibility data obtained from a June 2011 Ethical Corporation survey. The small sample of this survey means that the results should be regarded as an indication of trends in Switzerland and not France ..................................................................8.6% as scientific research. • Guideline and standards statistics obtained during June 2011 from official website of each initiative.
  • 25. Ethical Corporation • July-August 2011 Country briefing: Switzerland 25 ANGELAFOTO/ISTOCKPHOTO.COMCorporate environmentTaxes low, standards highBy Stephen GardnerSwiss companies are not considered to be sustainable business groundbreakers, but they respondto criticism and strive to meet the demands of Swiss consumers for high standards witzerland is notable for its long-lived compa- steadily and reap healthy financial rewards withoutS nies. The Swiss seem to have gone through aparticularly energetic spell of start-ups in the mid- having to hand too much of it over to the state, and without too much government interference. Swiss companies are not pushed19th century. Nestlé’s roots go back to 1867, while Reporting requirements are lenient. too hard unlessbanking giants UBS and Credit Suisse were foundedin 1854 and 1856 respectively. No pressure in the firing line While the rest of Europe was mired in political This tends to mean that Swiss companies are notupheaval and even revolution, the Swiss were pushed too hard on corporate responsibility, unlessestablishing Omega watches (1848), Bally shoes they happen to find themselves in the firing line over(1851) and lifts group Schindler (1874). Many Swiss a particular issue, as Nestlé did during the baby milkcompanies go back even further, to 1755 in the case of scandal. “Corporate responsibility initiatives areluxury watch maker Vacheron Constantin, for often not spontaneous,” says Antoine Mach, of Swissexample. corporate responsibility researchers Covalence. The longevity of Swiss corporations is a testament “Negative news acts as a stimulus. Less exposedto the stability of their homeland. Swiss companies companies tend to do a bit less.”also enjoy a favourable tax regime with an effective Pletscher says Switzerland’s corporatecorporate tax rate of 13-22%, depending on their responsibility leaders, such as Nestlé and Novartis,home canton. Switzerland charges a federal tend to be the companies most exposed to NGOcorporate tax rate of 8.5%, with the 26 cantons free pressure. Novartis, for example, works onto charge their own top-up levy. development issues through the Novartis But Switzerland’s low-tax reputation can Foundation for Sustainable Development. Theseovershadow other favourable aspects of its business companies “have for a long time had definedenvironment. These include a central location within policies, standards and mechanisms,” Pletscher says.Europe, excellent communications and other Switzerland also has a number of industrialinfrastructure, a flexible legal framework, and the companies considered to be effective corporatepresence of an “efficient, powerful finance centre, responsibility performers. Engineering group ABB,which can ensure your global financing”, says for example, is “very active and engaged,” accordingThomas Pletscher, head of regulatory policy at the to Pletscher. ABB’s priorities include the reduction ofcountry’s main business federation, Economiesuisse. energy and raw material consumption, and the Should they want to, firms can also take company has a corporate citizenship programmeadvantage of Swiss discretion and limited aimed at bringing electricity to remote communitiestransparency requirements. in India and Tanzania. It all adds up to an almost ideal situation from a The traditional watch-making industry,corporate point of view. Swiss companies can grow meanwhile is “less exposed” to accusations of poor
  • 26. 26 Country briefing: Switzerland Ethical Corporation • July-August 2011 NESTLÉ Case study: Switcher Clothing brand Switcher is often cited as one of Switzerland’s most progressive and responsible companies. Covalence’s Antoine Mach says it is a “pioneer in monitoring working conditions along the supply chain”. Robin Cornelius started the company in 1981 when he was still a student at the University of Lausanne. Danièle Buonocore, a Switcher corpo- rate responsibility manager, says Cornelius “spoke about sustainability almost since the cre- ation of the company. For instance, in 1997, he appointed a CSR director and created a whole department dedicated to sustainability.” In 1987 he set up an alliance with Indian garment maker Prem Group. In a reversal of the usual way of doing things, Prem Group bought into Switcher in 2010, and now co-owns it with Cornelius. Buonocore says the company’s aim is to “maintain a good level of working conditions in our supply chain and also to ensure full trace- ability of our products”. This is done through extensive auditing of suppliers and the awarding of ratings on a “whale scale” (Switcher’s logo is a whale). The benchmark for audits is the Switcher code of conduct, which is based on International Labour Organisation standards, but also empha- sises fair wages, fair working hours and “decency” of working conditions, for example in terms of the cleanliness of the workplace. If a supplier is found to be substandard, it will be given either a red or orange whale. Red-whale suppliers are those that refuse to enter into dis- cussions about making improvements, in which case Switcher declares itself unable to work with them. Orange-whale suppliers, however, are not And good ethics, says Covalence beyond redemption, and rather than abandoning them, Switcher works with them to improve con- ethical behaviour, says Pletscher. It is a sector with a ditions and practices. If this succeeds, the relatively small environmental footprint, and it is in supplier can be rewarded with a green (good) or the interests of the companies involved that they yellow (excellent) whale. Switzerland’s have good working conditions and employee Ultimately, Switcher says, the company “seeks relations, because they need to retain their highly to create a ‘smiling chain’ where all the com- low-tax reputation skilled staff. pany’s partners and collaborators are happy in can overshadow their work and no one feels exploited”. Not the best, not the worst other favourable Covalence publishes the EthicalQuote rating of Syngenta. EthicalQuote scores companies according aspects of its multinationals. This ranks the most ethically minded to their working conditions, the impacts of their Swiss companies as Nestlé and cement maker production processes, their products, their business Holcim, which are among the top 20% of most operations, and their reputation as reflected by environment responsible corporations globally. media coverage. ABB comes lower down in the rankings, along A similar roll-call of companies features in the with Novartis and fellow pharmaceutical firm Roche, Dow Jones Sustainability Index, where Switzerland is insurers Swiss Re and Zurich Financial, and well represented compared with similarly sized Richemont, the holding company for luxury brands countries. Julius Baer and Richemont do not feature, such as Cartier, Dunhill, Montblanc and Piaget. but machinery manufacturer Sulzer does. Lower still, in the bottom 20%, are bankers Credit “There is no great movement in Switzerland to Suisse, Julius Baer and UBS, and crop scientists lead the pack,” says Jean-Pierre Méan, president of
  • 27. Ethical Corporation • July-August 2011 Country briefing: Switzerland 27 EPROM/DREAMSTIME.COM Case study: Intersport In many ways, Intersport is a typically Swiss organisation. In common with institutions such as the Red Cross, it is based on pooled effort and shared benefits, having been established in the 1960s by buying organisations from Austria, Belgium, Denmark, France, Germany, Italy, Netherlands, Norway, Sweden and Switzerland. Naturally it chose central and stable Switzerland as its home. It is now the world’s largest retailer of sports brands, including its own, which are manufactured by third parties. According to the company, its partnership-based approach provided its first corporate responsibility headache. “The main challenge for the Intersport group is the fact that it is a coopera- tive organisation,” says Reidar Magnus, the firm’s senior corporate responsibility and supply chain manager. Each of the company’s units, from head office to national organisations and retailers, is run independently. Thus “the first hurdle we met when implementing our new CR strategy in 2005 was to get a clear overview of our entire supply chain with all its trading partners and intermediaries, and to pinpoint the final producing destination – the factory,” Magnus says. The situation is further complicated by the dynamic nature of the fashion sector, with a rapid turnover of producers, suppliers, and even producing countries. “Keeping our vendor- management system updated with the relevant CR information can be a major challenge,” Magnus adds. In building up a comprehensive picture of its supply chain, Intersport made some observations that are relevant to many Success is a shoe-in for Intersport companies. It found that factories sometimes have to cope with multiple codes of conduct from western retailers, though often commitment to the BSCI to ensure that social standards within these reflect similar requirements. It also takes time to convince our supply chain are improved,” Magnus says. The company’s suppliers of the benefits of a more responsible approach to audits are backed up by information-exchange meetings with business operations. suppliers and factory managers with a view to capacity building. The firm uses as its benchmark the code of conduct developed Intersport admits to a certain naivety when starting to imple- by the Business Social Compliance Initiative (BSCI), the ment its supplier programme. “In the beginning a lot of tasks Brussels-based corporate responsibility platform for companies were done independently from our buyers and the product and manufacturing outside their own countries, which tends to purchasing department,” Magnus says. “But we have learned attract continental European, rather than British or North that for implementing a successful CR strategy, staff on all levels American, members. need to be made aware of what the company’s goals are. Buyers “Our current CSR priorities are quite clearly focused on our and merchandisers must be given a key role.”the Swiss chapter of international campaign group product ranges for Swiss supermarket groupTransparency International. They are “not among the Coop, says the Swiss are well educated aboutbest, but not among the worst”. However, Swiss environmental and social issues. Coop began sellingcorporations are expected to meet high eco-products in 1989, organic food in 1993 andenvironmental and workplace standards, compared organic textiles in 1995. “Our consumers are aware Swiss consumerswith many other countries, and are in general about quality and added value, so they are not thatsticklers for keeping to the rules. They are, for focused on lowest prices,” she says. “If you offer expect high ethicalexample, among the least likely companies to pay them a wide range of products with quality and standardsbribes abroad, according to Transparency respect for nature and humans at an acceptable price,International rankings. they take it.” Swiss firms must also be responsive to demanding Swiss consumers are also wealthy, interested inSwiss consumers, who are proud of their Alpine health and wellbeing, and educated about humanenvironment and expect high ethical standards. Sales rights and other ethical issues, in part influenced byfigures for brands with ethical labels are high relative the role played by organisations such as the Redto other markets. The Swiss spend more per person Cross in the national psyche. This, says Covalence’son fair trade products than any other nation, for Antoine Mach, means there is “space for non-example. material needs to be met, and maybe corporate Carine Boetsch, who oversees ethically labelled responsibility goes in this direction”. n
  • 28. 28 Country briefing: Switzerland Ethical Corporation • July-August 2011 DNY59/ISTOCKPHOTO.COM Secrecy Don’t ask, don’t tell By Stephen Gardner The stereotype of Swiss secrecy is increasingly out of date, but some corporate governance issues remain to be dealt with witzerland’s tradition of secrecy is deep- S rooted. Its reputation as a place of discretion is mainly attributable to its banks. Shadowy reputation At times, secrecy has been an essential Economic Cooperation and Development cliché of no-questions-asked banking is barrier between Switzerland and malign standards, and to conclude and update overstated. But lack of transparency persists outside forces. Switzerland’s 1934 Federal taxation agreements with many countries. in some areas. Switzerland is unusual in Act on Banks and Savings Banks imposed a James Nason, head of international that it does not require private companies to duty of secrecy on bankers in part to protect communications for the Swiss Bankers publish their accounts, considering corpo- German clients who at the time risked death Association, says Switzerland’s reputation rate taxation to be a matter between the under Nazi law if they held foreign capital. for secrecy is undeserved. “Swiss banking company and its tax office. But banking secrecy has also given Swiss secrecy has never protected criminals and it Switzerland also allows the ownership of banks a valuable competitive advantage, is no obstacle whatsoever to a criminal companies to be disguised by permitting attracting those looking to hide their assets investigation,” he says. “There is a lot of bearer shares – shares that are not owned by – and raising ethical questions. The financial misunderstanding about Swiss banking a named entity or individual, but rather by sector is vital to the Swiss economy, secrecy.” whoever happens to physically hold them. contributing 11% of GDP according to the , Limitations on the need to disclose infor- Swiss Bankers Association (compared with Client confidentiality mation meant that even the world’s largest about 10% in the UK, and 8.5% in the US), He adds that banks have an obligation of commodities trading company, Glencore, and the Swiss government is careful to confidentiality, and “it is a criminal offence which is headquartered in Switzerland, protect its bankers. for any banker to give confidential client published little information about itself However, Switzerland has not been data to an unauthorised third party. until its recent floatation. Glencore’s head immune to the forces of the outside world, However, Swiss bank client confidentiality offices are in the small town of Baar, in the and various events have led to change. In has never been 100% absolute. If the Swiss canton of Zug, which, despite a small popu- the 1990s, lawsuits filed by Jewish groups attorney-general or a Swiss investigating lation of about 112,000, is home to about forced Swiss banks to publish details of magistrate comes into a bank in Switzerland 25,000 companies, attracted by low tax rates dormant accounts containing the money of and discretion. Holocaust victims. The banks eventually Many Swiss companies are committed to settled by paying $1.25bn into a compensa- Banking secrecy has given greater openness, Dunant says. Some tion fund. Swiss banks a valuable private companies “publish more in the Swiss banks have also been stung by interests of transparency, even though there information leaking out in the past few competitive advantage is no obligation”. Nevertheless, he adds, the years about funds deposited by foreign secrecy afforded by Swiss law to non-listed nationals to avoid tax in their own coun- wanting information in connection with a corporations “is a present concern, and it tries. Partly in response to leaked Swiss criminal investigation, then banking secrecy will probably change in the future”. information, the US passed the Foreign simply disappears.” Switzerland’s main business federation, Account Tax Compliance Act, which from The largest Swiss banks, Credit Suisse Economiesuisse, includes guidance on 2013 will require non-US banks to report and UBS, are both members of the Wolfs- transparency in its code of best practice for details of their US clients to the American berg Group, a collective of the world’s corporate governance, though this largely Internal Revenue Service. largest banks, which works to combat relates to being open about pay policies. The spotlight on tax evasion is one money-laundering, fraud, deposits of The slowness of some Swiss corporations consequence of the financial crisis, during corruptly obtained funds and other ethical to embrace transparency is shown by the which UBS in particular suffered because of and criminal risks for banks. limited adoption of the code. A “minority of bad investments. Desperate to avoid being Olivier Dunant, an attorney-at-law with companies” follow the code in every labelled as a tax haven, Switzerland has Ernst Young in Switzerland, agrees that respect, says Dunant. “I don’t think it is taken steps to meet Organisation for Swiss secrecy is a stereotype, and that the implemented very widely.” n
  • 29. Ethical Corporation • July-August 2011 Country briefing: Switzerland 29 RON SUMNERS/DREAMSTIME.COMNGOsCorporatedisconnectionBy Stephen GardnerThe presence of many of the world’slargest international NGOs does notnecessarily mean that Swiss companiesare more ethical than others witzerland is the country of non-govern-S mental organisations. It is the Europeanhome of the United Nations, and the shoreof Lake Geneva is thronged with interna-tional bodies working to make the world a Nice flags, but no ethical boostbetter place: the International LabourOrganisation, the International Federation The largest firms prefer to organise phil- ment in local politics, the fire brigade andof Red Cross and Red Crescent Societies and anthropic activities through their own military service, which all Swiss men arethe World Business Council for Sustainable foundations, he adds. Nestlé provides required to do. “It is a Swiss tradition thatDevelopment, to name a few. research grants through its Foundation for companies enable their employees to partic- The presence of so many international the Study of Problems of Nutrition in the ipate in such activities far beyond theirorganisations does not necessarily mean that World, with a particular focus on low- direct commercial interest,” Pletscher says.the ethical standards of Swiss companies are income countries. Roche has several Switzerland does have organisationshigher than others, however. “It doesn’t foundations that sponsor medical research. specifically promoting corporate responsi-make any difference,” says Jean-Pierre Méan, bility, with activities mainly directed atpresident of Transparency International in consulting with companies and persuadingSwitzerland. Some international bodies even Even the presence of the UN them to boost their corporate responsibilityhave their own ethical problems. The world does not act as a stimulus for performance. Philias is a non-profit institutefootball organisation Fifa, for example, with Swiss companies to raise ethical backed by public bodies such as the Swissits 2010 income of $1.3bn dwarfing most lottery and the city of Geneva, and companiescompanies, has “very poor ” governance, standards such as fragrance maker Firmenich, whichMéan says. “They are not seriously doing won an Ethical Corporation award in May.anything to fight corruption.” And Fifa’s The Credit Suisse Foundation supports Philias organises Switzerland’s annualrecent well-publicised scandals bear this out. educational projects, and has a disaster- Humagora conference, which is aimed at Like some corporations, some non-profit relief fund and a “jubilee” fund, which increasing the collaboration betweengroups come to Switzerland because there supports organisations in Switzerland, such companies and non-profit groups. Effectiveare tax benefits and “it’s a nice place to live”, as the Swiss Guide and Scout Movement partnerships are recognised by theMéan adds. and the Swiss Multiple Sclerosis Society. Humagora prize, given this year to Swiss Even the presence of the UN on the recruitment agents Adecco and Orif, andoorstep does not particularly act as a National non-profits organisation that helps people sufferingstimulus for Swiss companies to raise their Among the most important and best known from ill-health, or disabled people, enter orethical standards. At the end of May 2011, the NGOs on a national level are the Red Cross, re-enter the workforce. Adecco and Orifsupply division of the UN children’s fund, the environmental group Pro Natura, Pro had worked effectively to help disadvan-Unicef, published details of the prices it pays Senectute, which is the Swiss equivalent of taged jobseekers find work, Philias says.for vaccines. Swiss pharmaceutical giant Help the Aged, and Pro Juventute, which Steffen Bethmann highlights a relatedNovartis, which sells diphtheria, measles and promotes children’s rights. These are mainly initiative, Sozial Engagiert (socially engaged),tetanus vaccines, was the only Unicef funded by private donations, and large a platform backed by a Zurich church foun-supplier that refused to disclose its prices. government contributions. Donations by dation, as having national corporate Steffen Bethmann, a researcher at Basel companies are “not that big”, says Bethmann. responsibility impact. This promotes corpo-University’s Centre for Philanthropy Studies, There is more activity on a local level, rate citizenship, in particular through “socialsays there tends to be a disconnect between with exchanges between smaller companies dating”, a service to team up companies andSwiss NGOs and the country’s largest corpo- and local charities, such as sports organisa- local and national non-profits. Social datingrations. In Switzerland, the idea persists that tions. Thomas Pletscher of business has resulted in companies helping out aphilanthropy should be strategic, and should federation Economiesuisse says this is often variety of organisations in Switzerland, suchbe a way to achieve competitive advantage, founded in Switzerland’s tradition of as business news giant Bloomberg offeringhe says. Corporations are “sometimes reluc- citizens carrying out “public jobs” alongside financial planning support to charities, andtant to work with non-profits because they their daily employment. insurer Swiss Re backing the Swiss Societydon’t see the link to their own operations”. Such part-time roles include involve- for Muscular Dystrophy. n
  • 30. 30 Country briefing: Switzerland Ethical Corporation • July-August 2011 Rules and regulation Government incorporated By Stephen Gardner The Swiss authorities adopt a light touch attitude while setting the pace of the corporate responsibility agenda he Swiss government’s approach to T corporate social responsibility bears a remarkable resemblance to what might be expected of a major international company. Sustainability reporting is emphasised, but there are doubts about how deep the Calmy-Rey heads a corporate-like structure thinking goes. The Swiss government has some of the The strategy covers 2008-11 and includes Companies can opt out of the tax if they characteristics of a major corporation. many measures that will require a greater sign up for the Swiss emissions trading system. Switzerland is governed by a seven-person degree of sustainable behaviour from compa- In doing so, they take on legally binding board – the federal council – which makes nies. Some objectives could easily have been emission reduction targets, and receive free the decisions, while the president, Miche- lifted from a corporate responsibility plan, for carbon allowances up to their cap. If partici- line Calmy-Rey, acts as non-executive chair. example increasing the proportion of renew- pating companies over-perform, the surplus The Swiss board departs from most ables in energy consumption, minimising can be sold. However, Swiss emissions in 2008 company boards, however, in that the miles travelled by goods, reducing the – the same year as the tax was introduced – majority of its members are women. disparity between the salaries paid to men stood at more or less the same level as 1990, The government imposes no direct and women, increasing scientific research, according to the national sustainability dash- corporate social responsibility obligations and promoting multilingualism. board. on companies. There is no national corpo- Progress reports are available via an online rate responsibility strategy, and reporting sustainable development dashboard. This Emphasis on standards obligations, especially for private compa- shows that Switzerland plc is broadly making The government also behaves like a corpo- nies, are limited. Corporations listed on the progress on reducing its energy intensity, and ration in subscribing to international Swiss stock exchange must publish gover- on reducing the resource intensity of Swiss guidelines and standards, such as the nance reports, but sustainability reporting OECD Guidelines for Multinational remains voluntary. Swiss companies have Switzerland has, in effect, Enterprises, the International Labour the “freedom to decide their level of engage- Organisation Declaration of Principles ment,” says Thomas Pletscher, head of a national strategy for Concerning Multinational Enterprises and regulatory policy at the country’s main corporate responsibility Social Policy, and the United Nations Global business federation, Economiesuisse. Compact. The Swiss economic affairs state But this does not mean that the govern- products (resources consumed per unit of secretariat says: “It is the responsibility of ment expects nothing of its corporations. GDP fell by 15% between 1990 and 2009). corporate management to respect and apply Rather, it takes the view that if legislation is Performance has been less good, however, international standards.” needed to ensure the stability and sustain- when it comes to reducing waste, or cutting But critics say the government’s ability of Swiss society, then it will legislate. youth unemployment. approach is superficial, and is mainly “Companies are not expected to compensate To cut its carbon dioxide emissions, focused on reporting, rather than doing, for any regulatory or institutional weaknesses Switzerland introduced a CO2 levy in 2008. good deeds. The Swiss Alliance of Develop- on the part of the state,” according to the This is charged on all imported fossil fuels, ment Organisations (known as Alliance Sud) Swiss state secretariat for economic affairs. meaning the tax is shared across society, said in April 2011 that the government’s from individuals to businesses. In a novel implementation of the OECD guidelines Sustainability reports twist, the proceeds from companies are was “rather passive and minimalist”. Switzerland has a sustainable development redistributed in a responsibility-encour- This followed its failure to resolve a case plan that is, in effect, a national strategy for aging fashion. Firms receive payments involving the Swiss underwear manufacturer corporate responsibility. Unlike some corpo- based on the number of employees they Triumph International, and workers in rate sustainability reports, however, which have, meaning that the biggest benefici- Thailand and the Philippines, who claimed to might consider environmental and social aries, according to the Swiss federal office have been unfairly dismissed. Alliance Sud objectives as add-ons, the national plan for the environment, are companies “that, says the Swiss authorities, instead of giving specifically regards environmental protec- on the one hand, make effective use of fossil up on the case in January, should have done tion, economic performance and “social fuels and use renewable energy, and on the more, such as organising the translation of solidarity” as having equal importance. other hand, employ many staff ”. documents and facilitating meetings. n
  • 31. Ethical Corporation • July-August 2011 Health risks 31 VLADIMIR LUKOVIC/DREAMSTIME.COMOpinionScared to deathBy Jon EntineWhy everything you thought about the health risks from chemicals is wrong ou’re luxuriating in newly constructed digs, carcinogen” and classified styrene as “reasonably The costs toY napping on your Barcalounger, sipping coffeefrom a plastic cup, gossiping on your iPhone. Here’s anticipated to be a human carcinogen”. What do those classifications mean? society from setting policiestoday’s quiz: What’s your biggest health danger? The venerable New York Times headlined a front- Based on recent news reports, you’d think you’re page report with Government Says Two Common based on fearin cancer alley: formaldehyde leaks from the plas- Materials Pose Risk of Cancer – and that’s a restrained rather than scienceterboard walls, ceiling tiles are made with example of the risk-drenched headlines that haveout-gassing phthalates, radiation spews from your echoed through cyberspace. Jennifer Sass, the influ- are significantBPA-made phone and the toxic du jour, styrene, ential anti-chemical campaigner for the Naturalleeches into your latte. Resources Defence Fund (NRDC), did what she could Yet as any cancer expert would tell you, that’s the to magnify the cacophony. “The chemical industrywrong answer. By exponential degrees you are far fought the truth, the science, and the public – but inmore likely to face serious health danger from the end our government experts came through for us,sitting on your derrière, which increases obesity and giving the public accurate information about thedramatically raises your likelihood of cancer, than health risks from chemicals that are commonly foundfrom the other well-publicised chemical “threats” in our homes, schools, and workplaces.”combined. This quiz is worth considering, if only to So, based on the science, Mr and Ms Consumer,try to put in context two recent news events. should be concerned, right? In Germany, some 50 people have died from Ecoli poisoning and 900 others experienced Just when you thought it wasn’t safedangerous reactions from what officials believe That’s not what the science shows. The averagewere organically grown bean sprouts. E coli consumer doesn’t face health dangers from thosecontamination of organic foods is not uncommon – substances as we normally encounter them, and therecall for example the death and injuries caused by data presented in the NTP report doesn’t suggestbacteria-spiked Odwalla apple juice in 1996 that led that they the largest fine ever assessed by the US Food and Of the two chemicals, formaldehyde is problem-Drug Administration and the eventual sale of the atic. The report confirmed the widely known factcompany. Yet journalists and activists are not clam- that when industrial workers handle it, they faceouring for tighter controls of the organic industry. cancer threats – if they are not adequately protected. Contrast that silence to the reaction when No study has found serious health dangers fromsynthetic chemicals are in the news. In June, the exposure to formaldehyde in, for example, materialsNational Toxicology Program (NTP), a US govern- used to build your home, although the fumes arement agency that evaluates the potential hazards of known to cause irritation when concentrations arechemicals, listed formaldehyde as a “known human unusually high.
  • 32. 32 Health risks Ethical Corporation • July-August 2011 OLIVIER LE QUEINEC/DREAMSTIME.COM Your house is not making you sick, but tight oversight of production is prudent Dont panic! Naturally containing styrene So, what’s the responsible, if less than sensa- styrene as a “possible human carcinogen”, consid- tional, take-away from the NTP study on ered by scientists to be a weak warning. That formaldehyde? Your house is not making you categorisation means something quite different sick, but tight oversight of production is prudent. In from when a journalist or activist uses the term. the US, the Occupational Health and Safety Admin- istration sets firm exposure limits to protect Degrees of risk workers, and similar regulations are in place in For science literates, the translation is that some other countries. laboratory studies but not others found that rodents The new classification of styrene – a chemical exposed continuously to this chemical at levels 100 that occurs naturally and synthetically, and is used to 1,000 times higher than what humans are to manufacture many plastics, latex paints, poly- exposed to developed mutations. esters and coatings – as a possible carcinogen set off Are consumers in danger as the NRDC claims celebrations at the NRDC, where Sass referred to its and the New York Times headline implies? use in “synthetic flavouring in ice cream and Researchers say no. European Union scientists, who candy”. operate under the precautionary principle and are That’s a deliberately misleading reference to the guided by WHO and IARC, recently reviewed the fact that styrene is a natural component of identical studies and concluded that styrene is not a cinnamon as well as beef, coffee beans, peanuts, human carcinogen, echoing an expert panel in a wheat, oats, strawberries and peaches. The German report in a November 2009 issue of the Journal of BfR, known as one of the most conservative risk Occupational Environmental Medicine. assessment organisations in the world, studied this Even the data on worker exposure to styrene is very issue in 2006, concluding: “Small amounts of questionable. The two most comprehensive studies cinnamon have been used for thousands of years as to date, as noted in the NTP report, showed that a spice without any reports of side effects … no workers were no more likely to contract blood harmful levels of styrene have been identified in the cancers than peers working in the absence of styrene. cinnamon powder.” Misrepresenting science studies and caricaturing The NTP underscored the scientific consensus corporations as self-interested to the point of being that studies have not found health dangers in deceptive is a timeworn tradition of “reform common consumer exposure. And while the NRDC minded” consumer advocates. Risk – the danger of and hundreds of websites blithely claim that being injured – depends on how much of a chemical “industry pressure” slowed the NTP from listing you’re exposed to and for how long. When one styrene in its Report on Carcinogens, there is a belief looks at the details of many studies, because of that the NTP went beyond the science in its action. sample sizes, controls or other factors, the findings The World Health Organisation and the Interna- are often suggestive rather than conclusive. tional Agency for Research on Cancer (IARC) lists Risk researchers are statistically sophisticated
  • 33. Ethical Corporation • July-August 2011 Health risks 33 MIKHAIL LAVRENOV/DREAMSTIME.COMand understand this complexity, but campaignersand the media often do not appreciate the grindingprocess of science. For example, BPA has come under relentlessattack, yet a slew of recent independent reportsdisagree – by the FDA in January 2010, theEuropean Food Safety Authority in summer 2010, a2010 special advisory committee of German toxicol-ogists and the November 2010 meeting of the WorldHealth Organisation expert review panel on BPA.These all concluded that the collective evidencefrom thousands of studies demonstrates that thesmall-scale investigative studies touted by interestgroups do not lead to the consensus that BPA posesserious danger as an endocrine disruptor. Even regulators struggle with assessing risk.Recently, the National Academy of Sciences publiclyexcoriated the US Environmental Protection Agencyfor its methodology in assessing chemicals under itsIntegrated Risk Information System (IRIS), the EPA’sscientific position on the potential human healtheffects of exposure to more than 540 chemicals. The NAS concluded that the EPA’s “criteria toidentify evidence for selecting and evaluatingstudies” were often flawed and misguided, conclu-sions overstated and reports not presented in alogically consistent manner – and must include amore balanced “weight of evidence” review. What about the cookie?Rush to the unknown this distinction, but French politicians took a lessThe costs to society – economically and socially – sophisticated approach.from setting policies based on fear rather than The fear of synthetic chemicals diverts our focusscience are significant. It often leads to political and drains public funds from addressing documentedpressure to slap warning labels on packages that dangers. That’s underscored by a just-releasedamount to a skull-and-cross-bones, stirring unnec- American Cancer Society report. Despite the hysteriaessary concerns among consumers and workers. suggesting that modern society is being assaulted byCompanies come under siege and jobs are threat- its increased reliance on synthetics, chemical exposureened. Scared or confused, consumers switch to represents “relatively small risks” and human cancer It is safe to relaxproducts made with ingredients that have been rates continue their steady decline. on the lounger intested far less, in effect rolling the toxic dice. Cancer caused by chemicals is mostly confined to your new house This script played out in France in June. An work settings, amounting to about 4%, with pollu-intense campaign targeting phthalates led some tion and all other exposures adding another 2% of and talk on yourlegislators in the French parliament to pass a whole- cases. The increasing danger is from obesity and phonesale ban, rejecting recommendations of the French lack of exercise. That contributes to an estimatedhealth minister. But while French politicians capitu- one out of five cancer-related deaths.lated to fear, the Danish Environmental Protection Exaggerating risk is not prudent; it’s irrespon-Agency, one of the most aggressive regulatory sible. We don’t demand bans on coffee, whichbodies in the world, took a measured and nuanced contains more than 1,000 chemicals, including 19approach, distinguishing between the potential known rodent carcinogens, even though highrisks presented by different types of phthalates. amounts of caffeine have been implicated in It has proposed a ban on low molecular weight increased risk of bladder and oesophagealphthalates widely used in children’s toys and some cancer. We need a science-based approach tomedical tubing – DEHP BBP DBP and DIBP – which , , chemical regulation. It is safe to relax on the loungermay accumulate in the body and where the in your new house, talk on your phone and drinkevidence of potential danger is stronger. your cup of Joe. n Frank Jensen, chief adviser to the Danish EPA’schemical unit, noted that high molecular weight Jon Entine is director of the Genetic Literacy Project at Stats at Georgeplasticisers such as DINP DIDP and DPHP are more , Mason University, and founder of the sustainability consultancy ESGstable and resilient and make cost effective, quality MediaMetrics. He is author of Scared to Death: How Chemophobiasubstitutes for the low ones. EU officials agree with Threatens Public Health.
  • 34. 34 Strategy and management Ethical Corporation • July-August 2011 UNILEVER Other section content: 38 Risky business 42 Ray Anderson’s good news Unilever No slip-ups yet By Oliver Balch Unilever’s Sustainable Living Plan, launched in November 2010, has achieved some early wins, but the real story lies in the long-term strategy. Only by working with others does it stand any chance of success even pillars. Fifty core commitments. Horizons cream brand has linked with the Rainforest Alliance As John Elkington S of two to 10 years. Unilever’s Sustainable Living Plan all made for impressive reading, rather like an to source all its cocoa as sustainably certified. Should the list be longer? Perhaps. But to puts it, Unilever’s targets are election manifesto. Unilever’s credit, it has already harvested much of Politicians usually get a 100-day grace period the low-hanging fruit. Over the past 15 years, for “almost insanely before the critics plunge in. Anglo-Dutch consumer example, it has cut its greenhouse gas emissions and ambitious” goods giant Unilever has had six months, which is water use by 40% and 65% respectively. generous by comparison, but in sustainability terms, Obvious wins are therefore, well, not so obvious. that’s still early days. Take PureIt. The purifier was first launched in India Its targets are far from being a doddle (see box). back in 2004. What’s new is that Unilever has Some, as green guru and sometime adviser to expanded the product’s market reach, first to Unilever John Elkington puts it, are “almost Bangladesh and Indonesia and soon to Brazil. insanely ambitious”. The goal of making its entire Market expansion could help with some targets. agricultural sourcing 100% sustainable by 2020 fits Lifebuoy is one such example. This popular that bill. (The current figure stands at about 10%). Unilever soap is credited with helping improve the It remains legitimate to ask how the company is health of 130 million people (thanks principally to getting on. So what does its early report card look its impact on bacterial disease reduction). The like? product is now available in 50 countries, up from 25 a few years ago. Early wins Scaling up has a negative flipside, however. The Talk to Unilever and it will point to a number of bigger the business, the larger its environmental early wins. Karen Hamilton, global vice-president impacts. Unilever has set itself the target of for sustainability at the company, rolls off three. doubling growth, while halving its social and envi- The first is PureIt, Unilever ’s water purifier. ronmental footprint. Only new ideas and new Targeted particularly at low-income consumers, the approaches will ensure the opposite doesn’t product has provided access to safe drinking water happen. for 20 million people. In short, Unilever needs to innovate. Innovation Another is renewable energy. Every single requires many factors to be in place – not least Unilever factory in the Netherlands now runs 100% creativity, incentives and investment. on power from renewable sources. The company is Without doubt, nothing will happen without a also on course to become Canada’s largest commer- nod from the top. In chief executive Paul Polman, cial buyer of renewable electricity after signing a deal Unilever has a genuine sustainability champion. At with green power generator Bullfrog in April. the November 2010 launch, he made a splash with The third is Magnum. Unilever ’s leading ice his talk of “decoupling” growth from environmental
  • 35. Ethical Corporation • July-August 2011 Strategy and management 35 UNILEVERimpact and by telling sceptical investors to put theirmoney elsewhere. Six months on, he’s still sending the samesignals. He has since attacked European agriculturalsubsidies for keeping African farmers in povertyand criticised biofuel policies as “ill conceived”. The message is getting through to his 174,000 orso employees. Unilever ’s recent Global People’sSurvey showed a “significant shift” in those whoclaim to be “inspired” by the company’s vision andvalues, according to Hamilton. Polman’s comments have also served to boost thepublic profile and reputation of Unilever (thecompany recently pipped GE and Interface in asurvey on sustainable leadership by GlobeScan andSustainAbility). Both factors further incentiviseemployees, Elkington says. “It’s encouraging for people in a company to feelthat they are part of a winning team – and, also, thatthe world is watching,” he says.Sustainable productsThe encouragement is beginning to manifest itselfin more sustainable product offerings. A primeexample is the laundry detergent Persil Small andMighty. The product’s volume and required temper-ature have already been reduced, and nowUnilever’s marketing insists that the product can beused in a “quick wash” cycle with no drop inperformance. Unilever employees can be found in more than 20 million consumers now have pure water100 countries. To ensure that all are on board withthe plan’s objectives, the company has sent out a consumers, but it still has no means of assessing thebest practice toolkit for all its operations. The volumes that go into growing the crops that it buys.manual includes everything from case studies and To achieve its targets in such areas will requiregetting-started tips to advice on brand messaging outside advice and expertise. Unilever accepts thisand waste reduction techniques. fact and has shown an impressive willingness to get “We’re expecting all our 100 companies this year help where it develop action plans of areas where they will So, on biodiversity, it’s working closely withintervene,” Hamilton explains. conservation charity WWF to develop assessment Closer to home, Unilever has introduced quar- methodologies. Likewise, on water, it has reachedterly scorecards for its core marketing, RD and out to the non-profit group Water Footprintprocurement teams. The three-monthly reports Network for assistance. Sustainabilitykeep track of performance against the plan’s targets. “The groundbreaking scale of Unilever ’s Living PlanThe results are reviewed by the steering team commitments means it has big challenges ahead –responsible for the plan’s implementation and challenges that it will have to work with others Unilever’s plan containsreported to board level. outside the company to achieve,” says Mike Tuffrey, more than 50 concrete Unilever has other processes in place to ensure director at consultancy firm Corporate Citizenship targets that will:ongoing momentum. A “discovery” team in its RD and a long-term adviser to Unilever. • help more than 1 billionunit dedicated exclusively to sustainability solutions The company has already pioneered its fair share people improve theiris one. Obligatory sustainability criteria for all new of partnerships. Yet the scope and ambition of its health and wellbeingprojects and an employee network of sustainability sustainability targets are pushing it into new areas • halve the environmentalchampions are others. and new approaches. impact of its products Unilever does not have all the answers. The Jonathon Porritt, founder of environmentalcompany admits as much. Biodiversity is one diffi- charity Forum for the Future and a member of • source 100% of itscult area. The plan commits to help “improve Unilever’s Sustainable Living Plan’s steering team, agricultural raw materialsbiodiversity”, yet the company has yet to devise a points to the issue of non-home food waste. sustainably.way of measuring its own impacts. Unilever has just published an extensive study www.sustainable- The same goes for water. Unilever has mapped on waste in the commercial food sector, including living.unilever.comwater use related to its factories, products and restaurants. The World Menu report serves as a
  • 36. 36 Strategy and management Ethical Corporation • July-August 2011 BARBARA HELGASON/DREAMSTIME.COM Future challenges: Unilever’s to-do list Hygiene: Unilever’s PureIt water purifier has made drinking water available to 20 million people – that leaves a further 480 million to go if its target is to be reached. Nutrition: Unilever’s products provide key micronutrients. The challenge is making these products available to the very poorest in a way that’s economically viable. Greenhouse Cutting its GHG emissions will require Unilever gases: to help consumers reduce their use of hot water. That means new products and new tools. Water: New approaches will be needed to reduce the water consumers use while showering, bathing and hair washing. A few ideas so far, but more must follow. Waste: Increasing recycling and recovery rates will necessitate partnerships with governments, reprocessors and NGOs. Easier said than done, especially on a region by region basis. Sustainable There are two big challenges here. (1) the 20% sourcing: of agricultural raw materials over which Unilever exerts little purchasing power, and (2) non-agri- cultural (mainly chemical) raw materials. Getting other big buyers on board will be crucial. Better Supporting smallholder farming will have the livelihoods: biggest impact on the lot of the poor in devel- oping countries. Easy enough on a one-off basis, but building in scale is where it becomes difficult. Consumer behaviour can be hard to change sugar and dairy sectors. Porritt expects “a lot more” “baseline” from which to engage with the sector, to follow. Porritt says. Consumer-linked targets undoubtedly remain “It’s intriguing to see what [the plan] means in Unilever’s biggest challenge. Unlike producers and terms of reaching out to different organisations, suppliers, the company’s ability to influence forming different partnerships and bringing people consumer behaviour is limited. together in a completely different way,” he adds. Advertising, in-store campaigns and on-pack Innovation Unilever is stepping up its work with its information can effect some degree of change. requires many industry peers, for example. As co-lead of the Much more effective, however, is one-on-one factors to be in sustainability working team of the business-led contact. Consumer Goods Forum, the company is advo- Lifebuoy’s handwashing programme provides place – not cating industry-wide standards for products linked an apt example. Its success is a result primarily of least creativity, to deforestation. community demonstrations, local training and other direct interventions. These, Hamilton says, do incentives and Convincing the consumer not come cheap. And when it comes to hygiene, investment It’s all about gathering purchasing power, Porritt Unilever has set itself the target of reaching one explains. He says: “If you’ve got the top 15 big billion people. buyers of these commodity products – whether Some behavioural traits are so entrenched that it’s palm oil or soya or paper and board – then nothing short of government intervention will you’ve got scale and with that scale you can exert suffice to shift consumers. While Unilever ’s first influence.” instinct is to find market-based solutions, it is Unilever is now extending its experience in growing bolder in lobbying government for change. voluntary initiatives, such as the Forest Stewardship Showering is the classic example Unilever likes to Council and Marine Stewardship Council, to the cite. Around three-fifths (61%) of Unilever green-
  • 37. Ethical Corporation • July-August 2011 Strategy and management 37house gas emissions come from the company’s skin stand a chance. And therein lies the true mark of Some behaviouraland hair products, of which a significant proportion success. The plan’s targets are, in a sense, a mereis related to heated water for showers. academic abstraction. The real win is creating a traits are so “We can’t reduce the [shower] temperature or sustainable business movement that is more entrenched thattime people spend in the shower by ourselves. It buoyant, more ambitious and more mainstream. nothing shortneeds to be coupled with the way governments And a challenge for Unilever will be to get indi-operate,” Hamilton says. vidual brands to feel ownership of the Sustainable of government Among the policy measures that Unilever would Living Plan and to communicate directly with intervention willlike to see are water metering and improving the consumer audiences on what, for now, remainsinsulation of water heaters. rather a corporate level initiative. If brands do not suffice to shift live and breathe the laudable corporate goal, its consumersPick up speed impact will surely be open to question. Other areas,Unilever has a long way to go. It claims to be “on a such as impact on human rights and the impact ofjourney”. That is true. But that journey is not new. ecotoxicity should perhaps receive more attention.Though its plan may be new, Unilever has been in Of course, coming back to John Elkington’sthe sustainability management game for more than initial point, Unilever have given themselves a lota decade. to do. Progress has been steady over that period. Hamilton herself is under no illusions. She says:Indeed, Unilever’s record outstrips most. But it will “If we achieve these targets but haven’t been part ofneed to speed up drastically if it is to hit its new a bigger change, then we will have failed.”targets. The plan has succeeded in releasing a fresh Like a good politician, Unilever has laid out itssense of urgency and purpose. All the same, the case. It is also leading from the front. But it willkey delivery dates – 2012, 2015, 2020 – will come require some serious cajoling and diplomacy toround fast. persuade others to join it. If Unilever succeeds, it Only by teaming up with others does Unilever will be in coalition, not alone. n SA Detailed 10-page country briefings ON NOW LE In-depth analysis on the current state of corporate responsibility in: UK, Germany, China, South Africa, Japan, India, Brazil, Canada, USA, Netherlands, Sweden, France, ! Australia, South Korea, Spain and now Switzerland. All country briefings consist of 4 sections, which examine: • The historical background of CR • Drivers of responsible business • The role of NGOs and business associations • How the government is shaping the domestic CR agenda Some of the companies we’ve featured include: Allianz Tetra Pak Intel Panasonic ING Banco Santander Fedex Philips The briefings normally cost £195 but subscribers can purchase these for a heavily discounted rate of £90, just quote the discount code SUB90. Order now! +44 (0) 20 7375 7199
  • 38. 38 Strategy and management Ethical Corporation • July-August 2011 DANNISCHEN/DREAMSTIME.COM Oil and gas industry Complacency in the pipeline By Judy Kuszewski and Emma Wilson Oil and gas companies and their suppliers must collectively take ownership of the risks inherent in a dangerous industry he recent anniversary of the Deepwater Horizon Our report recently published by the Interna- Major oil and T tragedy revived debate around the way that oil and gas companies manage risk. The blowout at tional Institute for Environment and Development (IIED) – Shared Value, Shared Responsibility: a new gas companies contract out to BP’s Macondo well in the Gulf of Mexico killed 11 approach to managing oil and gas contracting chains people and spilled as much as 200m gallons of oil, – argues that a shift in industry mindset is required. specialised service the worst environmental disaster in US history. A move away from what the US national commis- providers to While Deepwater Horizon was an unusual sion on the Deepwater Horizon incident called a event, it is well known that the oil and gas industry “culture of complacency” is required to manage the increase efficiency carries social and environmental risks. Less well challenges posed by complex chains of oil and gas and outsource risk known are the challenges the industry faces as a contractors in increasingly risk-laden environments. result of its complex contracting chains. We tend to think of the sector in terms of a handful of brands, New frontiers, new risks including BP Shell and ExxonMobil. But about 75% , A combination of factors has made the oil and gas of industry activities are performed by service operating environment more complex than ever providers and their subcontractors. before. These include the move into ever more diffi- Indeed, BP was not alone in attracting criticism cult, remote and challenging environments, such as following the Gulf of Mexico spill. BP’s contractors deep water, tar sands, areas of high biodiversity, have also come under scrutiny, including areas used for traditional livelihoods, regions of Transocean, the rig owner; Halliburton, which did extreme poverty, and areas where governance and the cement job; and Cameron International, which regulation may be weak. built the blowout preventer. The incident high- Meanwhile, societies continue to look to the lighted the complexity – and vulnerability – of industry to deliver better development prospects. today’s oil and gas contracting arrangements. Yet many oil-rich countries such as Nigeria, To address this complexity, the industry has Venezuela, Iran, Angola and others have all failed to evolved performance standards and complex realise the full potential of their oil wealth. In a bid management systems and procedures. While good to increase control over and benefits arising from oil industry practice is prevalent in many places, there and gas development, governments increasingly set is a danger that many assume these systems are targets for local hiring and procurement in interna- enough to avoid serious failings. Deepwater tional projects. With low levels of technical capacity Horizon was a wake-up call, demonstrating that and high levels of corruption in many less devel- devastating (and preventable) failures can happen oped regions, this increases the challenges of even in developed countries with high levels of civil delivering benefits simultaneously to shareholders society awareness and ostensibly effective regula- and local communities while also avoiding major tory regimes. environmental damage.
  • 39. Ethical Corporation • July-August 2011 Strategy and management 39 LIGHTTOUCH/DREAMSTIME.COM Major oil and gas companies contract out tospecialised service providers such as Halliburton,Schlumberger, Transocean and Amec as a way toincrease efficiency and outsource risk. Contractorsalso subcontract many tasks. With contractors andsubcontractors directly responsible for activities onthe ground, their success can determine a givenproject’s overall performance. They are also essen-tial to fulfilling the industry’s potential fordelivering sustainable development benefits locally. Complex contracting chains raise a number ofquestions:• Who is responsible for ensuring that contractors and subcontractors are properly prepared to address all risks, however unlikely?• What actions must an operating company take to ensure that their contractors and subcontractors meet their contractual requirements and that they work to international good practice standards?• How do you ensure high environmental and social performance standards are maintained, even when speed and low cost of delivery are priorities?Shared value: local content and economic benefit Disasters re-energise the drive for improvementThe increasingly common government require-ments to hire local people and source goods and ordinate and make consistent the expectations andservices from local firms are known as “local practices employed throughout a project. Yet theycontent” obligations. The ability of a company to are not always consistently applied acrossmeet these targets depends on the availability of a contracting chains. They also tend to rely on asufficient number of people with the right skills to management system or a commitment to follow ado the job, whether construction work, catering or certain set of principles, which may or may not beclothing and equipment manufacture. sufficient to change behaviour in desired ways. Specialised contractors capable of performing The primary tool for managing responsibilitiestechnical or resource-intensive work are increasing in and performance throughout the contracting chainnumber in some oil-producing countries. However, remains the legal contract – and a range of proce-in many regions of the world, local content targets dures and processes that have evolved in support ofmay be unrealistic. Rather than maximising the the contract. In practice, operating companies focusnumbers of jobs created, regardless of quality, primarily on their relationship with the first-tier or Business hasindustry and governments together should seek to lead contractor. This means that environmental andoptimise local content in oil and gas projects, in order social performance further down the chain is often become subject toto deliver socio-economic benefits, while also given less attention. a greater rangepreserving high standards of health and safety, envi- A major disaster such as Deepwater Horizonronmental protection and societal wellbeing. always shakes up the industry and its regulators, of responsibilities demonstrating that despite the industry insistence enshrined inShared responsibility: beyond the legal contract that standards couldn’t be higher, there is always nationalIn recent decades, business has become subject to a room for improvement – and the required improve-greater range of responsibilities enshrined in ment is often systemic. legislationnational legislation and regulatory frameworks. In Following the Gulf of Mexico spill, the US and regulatoryaddition, oil and gas projects are increasingly government restructured its regulating body, thesubject to a variety of environmental, social and Minerals Management Service, in light of allega- frameworksother performance standards. These range from tions of inadequate oversight (and a history ofinternal company standards and international stan- corrupt practices). The new Bureau of Oceandards systems to voluntary codes (such as the UN Energy Management, Regulation and EnforcementGlobal Compact or Voluntary Principles for Security introduced what it called “aggressive and compre-and Human Rights), and obligations imposed by hensive” regulations. BP’s own accidentinternational financial institutions (including the investigation report made 25 recommendations toInternational Finance Corporation, regional devel- avoid such a disaster happening again, with anopment banks, and the Equator Principles financial emphasis on sharpening up its standards andinstitutions). increasing oversight and assurance. These standards have potential to simplify, co- But what really changed in the industry as a
  • 40. 40 Strategy and management Ethical Corporation • July-August 2011 Incentives and whole? Transocean, the world’s largest offshore rig when it comes to environmental and social protection. company, lost nine employees in the explosion but Incentives and penalties in contracts between penalties in still awarded its executives bonuses for 2010, calling operating companies and contractors tend to priori- contracts tend to it “the best year in safety performance in our tise speed and cost of project delivery over prioritise speed company’s history”. responsible practice. This provides a disincentive to individuals to “blow the whistle” – and cause delays and cost over It’s all about incentives – if minor incidents happen. responsible The new US regulations stipulate that an operating In fixed-sum contracts, environmental and social company’s chief executive must certify that a well budget lines are rarely ringfenced, so could be used practice has complied with all regulations. But can a chief to cover other costs of project delivery. executive’s signature guarantee that standards are Vital information about sustainability perform- upheld by everyone involved in the oil operation? ance, such as a company code of conduct or a Integrating good practices is not a one-off event – 10,000-page environmental impact assessment employees and colleagues need to be able to might be appended to contracts at the last minute, question each other, review ongoing challenges and leaving contractors to constantly play catch-up. deliver good decisions in the moment, something Reporting that consists of ticking boxes in no chief executive can deliver personally. multiple spreadsheets may or may not capture the Issues arise when top-down enforcement of stan- reality of what is happening on the ground. dards rubs up against a contracting, reporting and The false sense of security provided by complex bonus-giving culture that incentivises corner-cutting procedures and technology can undermine individ- uals’ preparedness for a catastrophic event, Figure 1: Expectations, performance and consequences especially if state-of-the-art equipment is in place or if a risk assessment judges the event to be highly unlikely. Environmental and social responsibilities Risks of failure Evolving responsibilities Legal responsibility • Legal compliance • Legal sanctions, Companies and their stakeholders respond to a set Specified, formally • Conformity to international fines and penalties of responsibilities that are constantly evolving. binding, and standards included in investment • Contractual Failure to meet any of these responsibilities comes compliance-based; agreements and contracts disputes with significant risks, such as increased costs and enforced by government • Meeting local content targets • Court cases and delays, increased financial liability, contractual regulators and contract • Carrying out mandatory public associated costs disputes, environmental damage, community holders consultation and social investment and delays tension, reputational damage and, ultimately, loss of • Implementing adequate emergency investment opportunities. response procedures Figure 1 sets out a typology of oil company responsibilities and their consequences. We empha- sise the importance of managerial responsibility. Responsibility to • Meeting good practice standards not • Reputational This refers to the efforts required to apply standards stakeholders included in national legislation or damage and procedures right across the contracting chain. Responsiveness to the contracts • Loss of social Managerial responsibility extends over and above expectations of • Transparency licence to operate legal requirements, more than the adoption of stan- stakeholders for good • Ensuring meaningful and responsive • Loss of future dards and procedures on paper, and beyond simple performance beyond engagement with stakeholders investment stakeholder consultation processes. Good commu- legal and contractual • Respect for and protection of the opportunities nications, training, oversight and corporate culture compliance local environmental and livelihoods may be taken for granted in complex situations • Development of beneficial and involving multiple organisations and multiple equitable social programmes for responsibilities. local communities Our new report offers a set of insights into why the industry as a whole still has a lot of work to do: Many companies and contractors lack a sense of Managerial • A culture of shared risk and • Loss of control over shared responsibility for the overall outcomes of a responsibility responsibility project outcomes project. Their legal obligations, and their customary Efforts applied by • Effective communication throughout and impacts business practices, mean they tend to focus on their contract holders down the chain • Inability to individual roles and responsibilities, and no one the contracting chain • Training in technical and managerial meet legal owns the totality of a project’s impact. to maintain high skills and cultural awareness responsibilities There is no lack of systems and processes at the environmental and • Technology transfer and responsibilities industry’s fingertips that can be used to define and social performance • Oversight and monitoring to stakeholders enforce performance standards. Rather, good throughout systems and processes are often not adequately implemented. Sometimes, it borders on being a
  • 41. Ethical Corporation • July-August 2011 Strategy and management 41 FRANZ PFLUEGL/DREAMSTIME.COMpaper exercise, and much more effort should go intosupporting and ensuring contractors and subcon-tractors are able to meet expectations. There are cultural and contextual challengesassociated with operating in diverse oil and gasregions. Sometimes these challenges hampercontractors’ ability to meet international standards,such as when local contractor markets are under-developed, or corruption is endemic, or operatingcompanies are unfamiliar with local practices. As far as solutions go, each situation is unique,but our IIED report offers a general set of actions forcompanies to follow:• Early-stage planning and assessment are key to success, and companies should collaborate across stakeholder groups to understand the local context and enable clear planning, as early as possible, even before contracts are signed.• Underdeveloped local markets are a limiting factor. Companies should work proactively to build long-term capacity in local markets to service the oil and gas sector (and broader economy) in the future.• Company procurement processes can play a role in proliferating performance standards, sharing good practices, resisting corruption and increasing transparency and accountability.• Contracts themselves need to contain a balance of incentives and penalties, to ensure that envi- Is there a brighter future? ronmental and social performance are given equal treatment alongside speed and cost of project success. Project partners must support one delivery, and to ensure that standards and expec- another in identifying and resolving problems and The oil and gas tations are clearly understood and contractors challenges, not avoiding them or deferring them to industry needs to are empowered to make the right decisions. others. An emphasis on long-term time horizons foster a culture of• Training and capacity building on the job will and outcomes is critical, regardless of the timeline of help improve contractors’ ability to deliver in the individual activities. teamwork and real world, and to keep the focus on the overall There should be a common agreement to shared ownership outcomes, rather than just on distinct and limited improve industry-wide practices to increase capaci- tasks. ties and participation among local firms. This may include common procurement practices, a code of There are many good mechanisms for providing conduct or industry commitment, common auditoversight and good quality communication mechanisms and other tools.throughout the contracting chain, including encour- The responsibility for action does not lie onlyaging contractors to do more of the front-line with the industry itself. Governments can make itengagement with stakeholders in the community. difficult or even impossible to ensure good perform- Reporting, responsiveness and good community ance. National oil companies are often inadequateliaison activities will help build trust and accounta- in their response to the environmental and social Judy Kuszewski is a UK-basedbility with external stakeholders. challenges, and impossible to influence. Under- consultant specialising in sustain- developed local contractor markets are the result of able business. Emma Wilson is aCan the industry change? long-term failures of markets and society. senior researcher in the Sustain-The oil and gas industry needs to foster a culture of We need to move away from our reliance on able Markets Group at theteamwork and shared ownership. Companies need standards and commitments on paper to judge oil International Institute for Envi-to put the right procedures and incentives in place industry performance and guide ethical investment. ronment and promote risk-preparedness, openness and collab- And civil society has a responsibility to become Kuszewski and Wilson areoration throughout oil and gas operations. There more aware of these challenges and be prepared to authors of the new Internationalshould be less reliance on paper exercises, more on challenge accepted ways of thinking. Institute for Environment andculture and communication. The solutions are long term and require a lot Development report, “Shared International and national oil companies, lead more research and collaboration. We hope this is the Value, Shared Responsibility: acontractors and subcontractors will need to develop beginning of a lively and responsible debate with new approach to managing oiltools and attitudes that support a joint approach to greater and deeper collaboration to come. n and gas contracting chains”.
  • 42. 42 Strategy and management Ethical Corporation • July-August 2011 ALPTRAUM/DREAMSTIME.COM Essay: lessons from a radical industrialist who live there, in what Majora Carter, founder of Sustainable Bronx, calls an envi- Every reason for hope ronmental injustice zone. The two engineers collaborate, and a year later a public-private partnership is born. The city commits $3m to capture and By Ray Anderson pipe the methane to a factory. The factory Innovative thinking can provide the solutions that will revolutionise business commits $50,000 to adapt its boilers. The two agree on a price for gas that is 30% less come from the private sector. My job has From this place, this perch, I can see than natural gas. With a calculated life of I always been to find solutions and put them into practice, beginning with my own clearly what we might accomplish as we shed the kind of thinking that had us nearly, the landfill gas project of 40 years, that translates into a financial value for the city company. The transformation of Interface but not quite, trapped. I can spot the (at present value) of some $35m for a $3m is, I believe – and I hope will continue to be dangers – and there are plenty of them – but investment. – a phenomenon of the first order, and I see even more opportunities. I have seen As methane is drawn down, the capacity provides ultimate meaning to the remarkable examples of the kind of new of the landfill is expanded, allowing the city company’s original creation. thinking the industrial systems absolutely to postpone opening a new one for an esti- It is a business-school case study brought must have. mated 15 years. The smell of methane that to life, and one that other businesses would I have seen a mechanical engineer be smart to take a good look at. For what design a new production line to manufac- company, what economy, what civilisation ture the same product at the same rate as Getting the job done well can exist without the services provided by one he designed ten years earlier. Except nature: air; water purification and distribu- this time he designs it to use 93% less horse has replaced just getting the tion (the hydrologic cycle); soil creation and power (one-fourteenth as much!) by using job done maintenance, thus food; energy; raw mate- large straight pipes on one level rather than rials; climate regulation; pollination; seed small, curved ones that span several levels. used to blanket the adjoining neighbour- dispersal; nutrient cycling; an ultraviolet Friction losses are cut dramatically, allowing hoods? It’s gone. And the earth is spared radiation shield; flood and insect control; for small pumps rather than large ones. enough greenhouse gas emissions and net primary production, the product of (methane is especially potent) to render the photosynthesis? Doing the job well engineer’s factory entirely climate neutral. Without any of them, provided by And yes, the new production line cost less And I’ve seen the marketing arm of that nature, there would be no economy in the to build than the one built 10 years earlier, factory realise the appeal of a climate- first place. and far less to operate. He has practised neutral product and dub it Cool Carpet, and Beginning at the headwaters of my whole-system optimisation, in which I have watched that product become a huge personal journey, framed to some unknow- getting the job done well has replaced just success, contributing incremental sales and able extent from my earliest days growing getting the job done. lifting the company’s image in ways no up in tiny West Point, Georgia, to that mile- I have seen another factory engineer ask amount of advertising ever could. stone moment of my epiphany in 1994, I his counterpart at city hall how much I’ve also seen a factory manager in have come at last to a remarkable and methane gas was being produced at the southern California muse over the possi- fulfilling place: a perch more than halfway local landfill. The city engineer checks, and bility of using solar photovoltaics to to the summit of a mountain whose top I he is amazed at how much there is, and at produce some of his plant’s electricity. He could scarcely imagine when my associates how offensive it is to the nearby African uncovers state and federal assistance for and I began this climb. American neighbourhood and the people such a system, but the accountants (who are
  • 43. Ethical Corporation • July-August 2011 Strategy and management 43 GABY KOOIJMAN/DREAMSTIME.COM cally hazardous waste), energy-intensive drying to remove the wash water, and chemical treatment to the wash water and dyes before they could be released into a river. Innovation results in a patented inven- tion, a new process that uses a computerised tufting machine to place yarn of specific colours precisely to form intricate patterns. Look to nature as a mentor and inspiration The old wet-printing machines are scrapped, the bridge burned, the investment written off, and the old technology abandoned. I have seen our people invent their way out of a water-, chemical-, and energy- intensive problem, and into a family of new products that give us a proprietary edge in our marketplace rather than a competitive handicap. One of the first products to benefit from the new tufting machines has its origins in an outrageous assignment issued by our chief designer to his design team: go out into a forest and see how nature designs a floor covering. Looking to nature as a mentor and inspiration, that team spends a day studying forest floors and streambeds. They find it to be chaotic – no two sticks, noHow does a gecko hang on? two stones, no two leaves, no two square feet are the same.only looking at costs) tell him it still won’t asks DuPont a question DuPont has never Yet there is a pleasant harmony in the“pencil out”. That manager doesn’t give up. been asked before, and gets a very big disorder. They return to their studios andHis sales people are sure that a product number for an answer. design a carpet tile in which no two tilemade with the help of sunlight will When that number is applied theoreti- faces are alike. All are similar, but none aregenerate new sales, and they are right. cally across the entire product line, it turns identical, contrary to the prevailing indus- The result? The solar-power system out that eliminating just 4% of the nylon trial paradigm that demands cookie-cutterconnects 120 kilowatts of peak voltage to used each year saves enough energy (not perfection from every mass-produced item.the California grid, and generates enough used by DuPont) to run the designer ’s Nature, the inspiration, is anything butenergy to tuft a million square yards of entire factory for half a year. I have seen that uniform, but she is very effective. This newSolarmade carpet, which generates incre- saving grow over the years, until that theo- product is given a name, Entropy, and in amental sales the accountant overlooked in retical 4% reduction now stands at a real year and a half it rises to the top of the best-his preoccupation with costs. 17%, and it even has a name all its own: seller list, faster than any other product ever I have seen a product designer, frus- dematerialisation through conscious design, has before.trated with the lack of progress in a concept with far-reaching implications for I have seen another design team addressimplementing sustainable design, plead, a voracious industrial system. a weird challenge: how does a gecko cling to“Let’s do something, anything!” So his team a ceiling?redesigns a product to use 4% less of its Innovation that delivers The question arises in a session intendedmost expensive and energy-intensive I’ve seen a multidisciplinary team of engi- to figure out how to completely eliminatematerial component (in this case, DuPont neers, production people, and product glue from the installation of carpet tiles.nylon). designers collaborate to find a new way to Glue uses harsh, petro-derived chemicals The redesigned product performs well in produce patterned carpet. The old way was and can be a devilish source of an “off-gas”all the usual tests, but an engineer is still to print the pattern on a plain-coloured – a volatile organic compound – long after acurious. He wonders what the effect of that carpet base. But printing was very water carpet is installed. Not a pleasant smell, or a4% savings means upstream (in other intensive and required harsh dyes, energy healthy place to work.words, incorporating the embodied energy to fix the dyes, washing to remove Though the answer to how a geckoexpended by the maker of that nylon). So he the excess (where the dyes become chemi- manages to anchor himself is found in the
  • 44. 44 Strategy and management Ethical Corporation • July-August 2011 HUGUETTE ROE/DREAMSTIME.COM most unlikely places – van der Waals forces – and is not the answer to the glue question, it gets people thinking new thoughts about the problem, and a solution is found: a small, 2.5 inch square of releasable adhesive tape is applied to the underside of tiles where the corners meet, with the sticky side facing up. This way all the tiles are connected laterally, not to the floor but to one another, and their own combined weight keeps them anchored in place. It accomplishes this using the special tape on less than 2% of each tile’s undersurface to produce a glue-and-chemical-free instal- lation. The bottom line? One more market differentiator for the company and its products, and no more glue fumes for its customers or workers. New thoughts Upside-down thinking? At Interface this has become normal. I have seen first hand how all of these examples evolved naturally from our Mission Zero drive. And they all repre- sent new thinking, important aspects of sustainability in action on the factory floor: • Whole system optimisation: big, short, straight, level pipes and small motors, not the opposite. Release the power! • Waste as “food”: polluting methane gas converted to a revenue stream, an energy provided me with these and many other But – and this is the hard part – that shift source, a greenhouse gas offset, Cool insights. These examples of new thinking must happen one mind at a time, one Carpet, a multimillion-dollar cost avoid- are very definitely drawn from real life and organisation at a time, one technology at a ance for a city, and an environmental represent the before-and-after views of time, one building, one company, one injustice removed. university curriculum, one community, one • In-the-round investment decisions: justi- region, one industry at a time, one product fied by more than cost; considering A sustainable society for the at a time until we look around one day and customers, market demand, the value of see that there is a new norm at work, and leadership, and incremental sales as indefinite depends on the vast that the entire system has been trans- factors in the go/no-go decision. ethically-driven redesign of formed. • Dematerialisation through conscious I cling to an observation by Paul Paydos, design and upstream thinking (the real the industrial system an associate in our now-divested fabrics leverage may be up there). business. “I have never known an ex-envi- • Burn the bridges: abandoning high- reality that the people of Interface have ronmentalist. Once you get it, you cannot impact technologies for low-impact, experienced on our transformative journey. unget it.” sustainable technologies that also yield As big as the challenge of sustainability is The movement is like a ratchet; it only better, more innovative product designs. for one company like yours or mine – moves in one direction. There’s every • Biomimicry: using nature’s time- tested newer, better products and processes that reason for hope in that observation. By engineering to create products that help us in our climb toward sustainability reading this you have created the possibility appeal to our deep appreciation of the rather than hold us back – a far bigger chal- that perhaps another mind will be added to natural world. lenge remains for all of society. How in the the green side of the balance sheet and the • Thinking upside-down. world will we do it? ratchet will go “click”. n I am convinced that having a sustainable As I have heard environmental scientist society for the indefinite future – whether Ray C Anderson is founder and chairman of floorings and writer Amory Lovins say countless that means seven generations or a thousand manufacturer Interface, Inc. times, “the best way to have good new ideas or more – depends totally and absolutely on This essay is an excerpt from Anderson’s recently is just to stop having bad old ideas”. the vast ethically-driven redesign of the updated book “Business Lessons from a Radical Industri- This is sustainability in action. Seventeen industrial system about which I have written, alist”, which was first published in 2009, by St Martin’s years of near total immersion in it has triggered by an equally vast mind-shift. Press in the US.
  • 45. Ethical Corporation • July-August 2011 Review 45 Business school bulletin By Oliver Balch Why we should sign first, the ins and outs of certifications and Indian corporate governance Certified poverty Indian non-effective Sign upfront Companies and donors have directors Academics are often blamed for taking the blindingly obvious and making ploughed millions of dollars into Indian businesses are going global. it hopelessly complicated. The best ideas, however, are often like gifts: certification schemes in recent The country’s legislators have tried to delivered in small, simple packages. decades. The result can be seen in the keep up by modernising company So, at last, a paper that can be boiled down to a single phrase: “Sign at plethora of ethical labels that now fill law to reflect international gover- the start, not at the end.” OK, so a few words of embellishment may be our supermarket shelves. nance standards. Corporate scandals required. Most of these products carry a price such as the Satyam affair have added Business managers sign tax returns, expense reports and a host of premium. That’s partly because momentum to that cause. As a result, other self-reported documents all the time. Such statements have two responsible production incurs addi- corporate responsibility has appeared distinguishing characteristics. First, they typically invite the signatory to tional costs – either because of the on the policy agenda for the first confirm on the last certification process itself or because time. page that all the cheaper, less ethical options are ruled In 2009, the government issued information is out. But the understanding – either “CSR guidelines” (a prelude to truthful. Second, they explicit or implicit to the label – is that expected changes to the Companies frequently contain some of that cost is making life better Act) for private-sector involvement in untruths. What, the for those at the bottom of the chain. areas such as education, health and authors of this joint This paper challenges that notion, rural development. And the guide- report hypothesise, and in doing so issues a wake-up call lines go further, including the express if you moved the to companies and consumers alike. hope of corporate responsibility being signature line to the Based on a sample of small coffee integrated into business decisions and top? And there it is: producers in Nicaragua, the study stakeholder interactions. the simplest idea yet argues that the relationship between The onus, as with the parallel for encouraging certification and poverty reduction is corporate governance reforms, focuses greater honesty. “not clear cut”. on directors. Therein lies the Making the pen even mightier But could some- In each case, the certified small- weakness, this paper warns. Owner- thing so simple work? holders received higher farm-gate prices ship structures in Indian firms are, in Could telling signers to swear upfront that they will tell the truth, rather for their produce. Yet the per capita net general, highly concentrated. Direc- than that they have told the truth, really change practices? coffee incomes were shown to be insuf- tors, as a result, just don’t have the Both field and lab experiments indicate the answer is yes. The authors ficient to cover basic needs of all independence of voice or the admit the core manipulation in the theory is “trivial” (again, a refreshing coffee-producing households. Indeed, decision-making clout to put CSR admission from the ivory towers of academia). But that is precisely the the findings even suggest that over a centre stage. point. A nudge is often enough to refocus an individual’s moral compass. 10-year period organic and organic- Unless legislators tackle the This increased saliency of moral standards, in turn, can lead to increased fairtrade farmers have become poorer “majority-minority agency problem” truthfulness in the subsequent self-report. In contrast, when signing at the relative to conventional producers. that exists in most Indian firms, their end of a form, the damage has already been done. It all comes down to The reasons lie with low yields, efforts – while well-meaning – will objective self-awareness, ie the point when an individual’s own conscious- low profitability and low efficiency. If be wasted. ness is focused on himself or herself. The opposite – subjective labels are to avoid the charge of “certi- “Directors as Trustees of the Nation?”, Afra self-awareness, when attention is focused away from the individual – is fying poverty”, they must concentrate Afsharipour, Seattle University Law Review, what allows the mental trickery to justify cheating and still maintain a not just on paying a fair price but on Vol 34, No 4, 2011. positive self-image. improving productivity too. The researchers conducted four tests. The first and most fascinating “Profits and poverty”, Tina Beuchelt and Campus news focused on responses from 13,488 US automobile insurance policy holders. Manfred Zeller, Journal of Ecological The Universities of California and Each was asked to estimate their annual mileage. The incentive to lie is high Economics Vol 70, No 7, May 2011. Washington have inaugurated new as the lower the mileage (the policy holder can justifiably presume) the chapters of the campus-based CSR DANIELA SPYROPOULU/DREAMSTIME.COM lower the premium. group Net Impact. On average, those who signed at the beginning said they would drive Rhode Island-based Brown more than 2,400 miles further than those who signed at the end of the University won top spot at the Inter- document. national Sustainable Campus Given that about $150bn in US tax returns go unpaid every year, govern- Network’s recent annual awards ment stationers might be well-advised to rethink their forms. ceremony. The network promotes “When to Sign on the Dotted Line?”, Lisa Shu et al, Harvard Business School, Working sustainable solutions both in univer- Paper, May 2011. sity infrastructure and in syllabus Label doesnt guarantee poverty reduction teaching. n
  • 46. 46 Review Ethical Corporation • July-August 2011 Deutsche Post DHL Corporate Responsibility Report 2010 Finding the right road By Elaine Cohen Deutsche Post DHL is delivering good reporting eutsche Post DHL’s 2010 online corporate registered in one country operating services within D responsibility report is designed like a complex logistics network navigated via a sleek online route another. Deutsche Post DHL also makes the case for regulation to develop “common, international and map. It starts with a home page overview showing industry-driven standards for carbon measurement”. possible routes to a mass of information in a cleverly With regard to the company’s direct operational Snapshot planned navigation hierarchy. You can start at the impacts, it manages a comprehensive set of Follows GRI? Yes, GRI B+. beginning or go directly to what interests you. performance indicators within its living responsi- Assured? Yes, limited assur- Amply signposted, your journey is supported bility strategy. This has three main pillars: Go Green ance using ISAE 3000. with infinite hyperlinks, in-section menus and an (CO2 efficiency), Go Help (disaster response and Materiality analysis? No online mouse-over glossary for those bits of preparedness) and Go Teach (improving educa- Goals? Yes Deutsche Post DHL jargon that you might not be tional quality and equity). Targets? Yes entirely familiar with. Go Green has a target to improve CO2 efficiency, Stakeholder input? Yes The complete content of this report is download- including transportation subcontractors’ operations, Seeks feedback? Yes, with able in a 246-page PDF or an at-a-glance overview of by 30% by 2020, compared with 2007 levels. While incentives. 21 pages. Report assurance is indicated online on absolute carbon emissions have increased every year Key strengths? Great online each assured page. Accessibility and seamless navi- since 2008 (5% more in 2010 than in 2008), Deutsche format and navigation. gability are best-practice features of this Post DHL’s carbon efficiency (normalised to units of Chief weakness? Poor presentation, complete with an online feedback operation), has improved from a baseline of 100 in reporting of materiality. questionnaire and a promise that Deutsche Post 2007 to 88 in 2010 towards a target of 70 in 2020. Of Pleasant surprise? DHL will make a €5 donation to Plant-for-the- course, while the company reaches its carbon effi- Nicely navigable online Planet for each of the first 200 fully completed ciency target, it may well be generating more carbon presentation. questionnaires received. emissions than at any time in its history. Deutsche Post DHL has 467,000 employees and operates in 220 countries. By far the most interesting Help where needed aspect of its business is how the company could use Go Help is Deutsche Post DHL’s programme to its massive infrastructure and influence to trans- address disaster relief, the new de rigueur corporate form the transportation landscape across borders responsibility platform for logistics and technology and influence customers to adopt resource-efficient companies, given the frequency of major natural practices through new business models and collabo- tragedies that are occurring around the globe. rative initiatives. Deutsche Post DHL has established disaster Deutsche Post DHL offers green services, response teams, which have been deployed in many Accessibility including assistance for customers’ carbon emis- countries, providing local assistance in ensuring and seamless sions reporting and offsetting, carbon dashboard relief supplies get through. DHL has even devel- maps for tracking logistics carbon efficiency, green oped an innovative form of waterproof packaging – navigability are consulting services for carbon reduction strategies “DHL Speedballs” – which can hold up to 25 kilo- best-practice and a hybrid global mail service, sending docu- grams, withstand airdrops better and stay afloat features of this ments by electronic transfer for local printing. longer than other containers. They have been used Aside from a couple of brief examples, the in several relief efforts. presentation company does not report the extent to which Overall, however, it is not easy to get to what greener services are actually adopted by customers, really counts in this GRI B+ level report. There is no or how Deutsche Post DHL proactively markets distillation of core issues raised by stakeholders sustainable solutions. about different aspects of Deutsche Post DHL’s More interesting is the stand that Deutsche Post business and no materiality prioritisation. DHL takes on core sector issues including the need The three pillars of the company’s strategy are Elaine Cohen is a sustainability for greater regulation. The company says: “ compre- A surely worthwhile, but the lack of analysis of stake- consultant and reporter at hensive and global political framework is especially holder expectations on a broader range of Deutsche Beyond Business, and is a CSR important to encourage CO2 efficiency improvement Post DHL impacts and performance is an omission. blogger. ambitions in our industry and in other sectors.” Apparently materiality is the road less travelled on In the EU, for example, many trucks operate the Deutsche Post DHL highway to CR trans- empty due to restrictions on “cabotage” – vehicles parency in an otherwise impressive report. n
  • 47. Ethical Corporation • July-August 2011 Review 47BP 2010 Sustainability ReviewBack to the futureBy Ellie AustinBP’s latest reporting omits targets and data P’s 2010 reporting comprises a printed Sustain- performance of their suppliers.B ability Review, also available as a PDF, withadditional information online including separate In the safety section BP acknowledges that performance is a serious concern, with fatalities insustainability reviews for 10 countries in which BP the Gulf of Mexico and earlier in the 2005operates. explosion at its Texas City refinery. BP’s strategic Snapshot The 50-page Sustainability Review is the first response is the establishment of a new Follows GRI? Yes to GRI from BP since the Deepwater Horizon rig independent safety and operational risk function Assured? Yesexploded on April 20 2010. The six main chapters and the move to include individual contributions Materiality analysis? Yescover the usual oil company subjects but this special to safety and risk management in employee Goals? Nonereport begins with an eight-page section on the Gulf performance assessment. Targets? Noneof Mexico incident. Although this is encouraging, the safety section Stakeholder input? Limited The generally candid text is complemented by the is symptomatic of the report’s biggest failing – its Seeks feedback? Yeschoice of cover image of the oil slick being treated. absence of targets. What happened to BP’s “zero Key strengths? CandidThe chapter covers the initial disaster, how BP harm” target from earlier years? The report is coverage given to Gulf ofcontained the leak, the cleanup, and the company’s entirely target-free, which, given that Mexico oil spill.ongoing commitment to improve the environmental sustainability is primarily a discussion of a Chief weakness? Absence ofand economic state of the region. company’s future intentions, is a major flaw. climate change strategy. Despite the prominence given to Deepwater The section on energy future discusses the twin Pleasant surprise? SafetyHorizon the section is undermined by serious challenges of meeting energy demand and and risk management linkedomissions in data. The decision not to try to estimate tackling climate change. The text articulates the to employee performancehow much oil was spilled in the accident is a bad one. challenges clearly but glosses over the impacts of assessment.The explanation for not doing so – “no accurate tar sands and shale gas extraction, both of whichdetermination can be made or reported until further BP is involved in. Worse still it offers no significantinformation is collected” – is unconvincing and feels leadership on climate change or strategy forlike a kick into the long grass. An estimate of 4.9m reducing fossil fuel emissions to the levelsbarrels is widely quoted elsewhere. scientists have long advised. Consequently, BP’s stated oil spills for 2010 of1.7m litres may be about two-thousandths of the Setbacksrealistic figure. Data tables and bar charts showing BP’s current abrogation of responsibility forthe number and volume of oil spills holding roughly climate change is a far cry from former chiefsteady from the previous year are pure fantasy. executive John Browne’s groundbreaking speech The safety section It is left to a footnote (and some green shading) in in 1997 as he withdrew from the Global Climate is symptomaticthe data table to disclose the omission of arguably the Coalition and positioned BP as the oil major thatmost material data to the entire report. How the would work on solutions to climate change. In one of the report’sassurers, Ernst Young, signed off on this fiendish of the few external views printed in the report, biggest failingconstruct is beyond our comprehension. Ernst Karina Litvack of FC Management says: “If BP – its absenceYoung does note the omission in its statement but does not lead, others will, calling into question thethis is a wholly inadequate method of flagging a fault viability of its business model.” of targetsthat should never have been allowed to pass. BP’s lack of a strategy for tackling climate BP rightly identifies contractor management as a change and its phobia about targets in general givekey issue – 60% of hours worked are by contractors. the impression of a company with no direction,But the single page of text on this issue lacks detail increasingly being left behind by other companieson how the company oversees suppliers and how with a clearer vision of corporate sustainability andwell it believes they are performing. plans for working towards it. BP’s reporting in the BP could learn lessons from the clothing and IT 1990s was better than this. The company shouldsectors. Companies such as Nike and HP have led go back to the future.this agenda, and by comparison appear to have As a footnote, the report apparently achieves Ellie Austin is a consultant atgreater influence, understanding and engagement a GRI A+ rating. This should tell you all you Context.with their supplier companies. At any rate they are need to know about the challenges this standard transparent about the relationships and the faces. n
  • 48. 48 Review Ethical Corporation • July-August 2011 New books Some summer reading The Innovator’s Manifesto: BP and the Macondo Spill: deliberate disruption for the complete story transformational growth By Colin Read By Michael Raynor Hardback: 256 pages, $40 Hardback: 240 pages, $23 ISBN-10: 0230293581 ISBN: 0385531665 Publisher: Palgrave Macmillan Publisher: Random House Published: June 2011 Published: June 2011 A comprehensive look at all the angles of the Deloitte senior consultant Raynor, co-author of The devastating BP oil spill of 2010, this account is Innovator’s Solution, argues that disruption theory is instructive both on the science behind the disaster the only theory in business today that can accurately and the management lessons to be drawn from it. predict the success or failure of a company or product. Brandwashed: tricks companies Handbook of Gender, Work use to manipulate our minds and Organization and persuade us to buy By Emma Jeanes et al (eds) By Martin Lindstrom Hardback: 496 pages, £85 Hardback: 288 pages, $25 ISBN: 1444394726 ISBN: 0385531733 Published: Wiley-Blackwell Publisher: Crown Business Publisher: March 2011 Published: September 2011 This work of reference represents a remarkably Promoted as a “shocking, no-holds barred exposé”, complete, detailed and extensive review of the field of this book pledges to reveal all the manipulative ways gender, work and organisation. Compiled by authors marketers and advertisers tap into our most deeply from eight countries and multiple disciplines, including seated fears, vulnerabilities and dreams to sell us their management, sociology, political science and gender products. studies. The Embedded Firm: corporate Postcolonial Economies governance, labor, and finance By Jane Pollard et al (eds) capitalism Hardback: £65 ISBN: 1848134058 By Cynthia Williams and Peer Zumbansen (eds) Publisher: Zed Books Hardback: 496 pages, $105 Published: May 2011 ISBN: 1107006015 Publisher: Cambridge University Press Using examples drawn from everywhere from India to Published: August 2011 Latin America, this book of essays describes the This collection of well-researched and timely essays transnational flows of capital and workers and explains offers fresh perspectives on the impact of the how territorial borders are being made and re-made. globalisation of capital markets on how firms operate and their relationships with their employees. The Handbook of The Sugar Barons: family, Communication and Corporate corruption, empire and war Social Responsibility in the West Indies By Jennifer Bartlett et al (eds) By Matthew Parker Hardback: 608 pages, $199.95 Hardback: 464 pages, $30 ISBN: 1444336347 ISBN: 0802717446 Publisher: Wiley-Blackwell Publisher: Walker Co Publisher: August 2011 Published: August 2011 An impressive, accessible volume that includes writing A historical look into one of the most important and by a significant group of international scholars and epoch-shaping commodities, this examination of practitioners, this handbook will prove instructive to CSR Britain’s sugar-growing dynasties offers a fascinating practitioners and students alike. historical insight into the changes in trade and business culture over three centuries.
  • 49. Ethical Corporation • July-August 2011 People on the move 49 People on the move By Claire Manuel With thanks to Miriam Heale, Allen York Recruitment Julia King is about to join BT has appointed Niall Dunne as chief sustainability corporate sustainability officer to lead the company’s climate change and sustain- Appointment of the month Beatriz Perez, currently chief marketing officer for strategy and communications able development strategy. Coca-Cola North America, will become chief sustain- consultancy Context as Dunne will coordinate all ability officer of The Coca-Cola Company. In this managing director, Europe. sustainability activities across BT, new role, Perez will integrate Coca-Cola’s sustain- She will assume Simon ensuring sustainability practices ability initiatives in the areas of water, climate Propper’s responsibilities for are embedded into BT’s strategy, protection, packaging and recycling, and community running the UK operation products and services. Dunne through a new global Office when he moves to Los Angeles has spent the past decade of Sustainability. UnderJulia King to expand Context’s existing leading sustainability practices Perez’s leadership, the operations in the US. King has in Saatchi Saatchi and Accen- office of sustainability will30 years of corporate management experience gained in ture and has chaired a number Niall Dunne create and oversee Coca-the pharmaceutical industry, working for a range of of industry initiatives, including Cola’s integrated globalfirms, including Glaxo, Zeneca, Astra, SmithKline the sustainable consumption sustainability strategy.Beecham and, most recently, GlaxoSmithKline. project board for the World Economic Forum in 2009. “We have made signifi- cant progress with our Henderson Global Investors Sustainable Atlanta, a non-profit organisation focused sustainability initiatives, has appointed Jenny Pidgeon on sustainability policy and programmes, has hired Beatriz Perez but our current approach as director of property – Suzanne Burnes as its new executive director. needs focus and better responsible property invest- Previously, Burnes served as the assistant director of the integration to further accelerate our system sustain- ment (RPI). Pidgeon will be Georgia Department of Natural Resources’ sustainability ability agenda and meet our 2020 Vision goals,” says responsible for developing and division. She also spearheaded the division’s Partnership Muhtar Kent, chairman and chief executive officer. implementing Henderson’s RPI for a Sustainable Georgia, a voluntary business leader- Perez joined The Coca-Cola Company in 1996 as programme, chairing the RPI ship programme. an associate brand manager and has held various committee and co-ordinating roles, including director, NASCAR; vice-president,Jenny Pidgeon all aspects of Henderson E.ON has appointed Mike sports and entertainment for The Coca-Cola Property’s sustainability Winkel as chief executive Company; and senior vice-president of integratedapproach. Pidgeon joins from Upstream Sustainability officer of E.ON climate and marketing for Coca-Cola North America.Services, where she worked with several leading renewables. Winkel wasinvestors on their sustainability strategies and was previously deputy director-involved with industry research into the link between general of E.ON Russia SH Group, an energy and technical facilities manage-sustainability and investment performance. and OGK-4, where he was ment company, has hired Nigel Larkman as director of responsible for energy energy services for the UK and Ireland. Larkman’sEthix SRI Advisors has established a new advisory business and optimisation. former role was head of environment and sustainabilitycouncil to provide strategic advice on its approach to Mike Winkel at the National Australia Banking Group.norm-based screening, across the spectrum of humanrights, environmental, labour and anti-corruption Phillips Foods and Seafood Restaurants has Paul Hilton has joined Trilliumissues. It will be chaired by regular contributor to appointed Ed Rhodes to the newly created position of Asset Management as a port-Ethical Corporation Dr Rory Sullivan. vice-president for sustainability and aquaculture folio manager. Hilton has been development. Rhodes was previously co-director of involved in sustainable andThe new chairman of the Church of England’s Ethical Phillips’ aquaculture and sustainability division. responsible investing for moreInvestment Advisory Group will be corporate lawyer than 15 years, working on bothJames Featherby. A recently retired partner of City law Oxford-based sustainability consultancy Best Foot the investment and sustain-firm Slaughter and May, Featherby was a corporate Forward has appointed a new chief executive, John ability research and advocacyfinance lawyer and led the firm’s corporate real estate Zafar. Zafar has a management background within the sides. Prior to joining Trillium,practice. He will succeed the present chairman, invest- professional services sector. Paul Hilton Hilton was vice-president,ment banker John Reynolds, in January 2012. sustainable investment BWise, an enterprise risk management, corporate business strategy, at Calvert Investments.Jenny Borden has joined the Board of Traidcraft. compliance and internal control solutions provider, hasBorden was previously deputy director and international appointed Mikko Valtonen as its business development Zoë Arden has joined MSL Group to head up a newdirector of Christian Aid. She is a non-executive director director for sustainability and EHS. Valtonen founded sustainability unit that will span MSL London, Publicisof Crown Agents, chair of the Fair Trade Advocacy office in Proventia Solutions Oy, a leading Scandinavian sustain- Consultants and SAS London. Arden was previouslyBrussels, and a former chair of Practical Action and BOND. ability software and consulting company in 1999. director of communications and CSR at BT Retail. n
  • 50. 50 CEO interview Ethical Corporation • July-August 2011 Laurent Abadie, chairman and chief executive, Panasonic Europe How to obtain comfort and sustainability Laurent Abadie was appointed chairman and chief executive of Panasonic Europe in April 2009. A French citizen, he was the first non-Japanese director to take the role. Abadie joined Panasonic France as managing director in 2004. By Oliver Balch Ethical Corporation: Panasonic aims and the society we live in. to become the “number one” green innovation company in the elec- EC: If you had to pick one green “idea tronics industry by 2018. What’s the for life” from Panasonic’s recent inno- motivation behind this target? vations, what would it be? Laurent Abadie Laurent Abadie: Panasonic was LA: Our “eco ideas” concept house in there are significant cost savings to founded in 1918 and built on the phi- Japan is a great example. It creates, be had by decreasing consumption losophy that we should “contribute to saves and stores electricity, demon- Drastic of traditional energy. We are also progress in society and to enriching strating how we can live with virtu- happy to see governments support- people’s lives through manufacturing”. ally no CO2 emissions. Electricity is greenhouse ing this step-change towards greener This is still true for us today. generated through fuel cells and solar gas emission living, such as the move towards re- panels, then stored in a large lithium newable energy in Germany. EC: What’s your strategy for achiev- ion battery. In addition to this, we use reduction by ing this goal? energy-saving home appliances and innovative EC: With demand for consumer elec- building materials that provide high tronics set to boom in emerging LA: We have set ourselves some mid- insulation in the house. technological economies, how is Panasonic address- term targets covering two main focus development ing the implications for e-waste? areas: Green Life Innovation, where EC: Panasonic is involved in a couple must be we promote lifestyles with virtually of green field “eco cities” in Japan LA: There are various challenges zero CO2 emissions; and Green Busi- and China. How replicable are these achieved posed by each country and region, ness Innovation, where we create elsewhere? so we are working with stakeholders and pursue green business-styles. in each society to develop efficient LA: We believe the Smart Sustain- recycling schemes. In China, for ex- EC: How is senior management be- able Town could indeed be a model ample, Panasonic and other compa- ing incentivised to contribute to- for future sustainable urban plan- nies have recently established a re- wards the 2018 goals? ning. These are cities in which sus- Fast facts: cycling company called Panasonic tainability is well established through Panasonic Hangzhou DADI. The new recycling LA: The remuneration and bonuses an ecosystem for all urban functions, Global company will collect and disassem- of our board directors are linked to the such as travel, power creation and ble used home appliances and elec- individual performance as well as en- distribution and housing. Their main Company name: tronics, and sell recovered materials vironmental management indicators goal is to achieve a lifestyle that is Panasonic Corporation in compliance with Chinese rules. such as CO2 emission reduction. comfortable and sustainable at the Headquarters: Osaka, same time. This can also be applied to Japan EC: The environment faces some EC: At Panasonic, do you differenti- cities around the world that already Company president: huge problems. Japan is famous for ate between the term “green” and have established infrastructure. Fumio Ohtsubo its management theory of “continu- the term “sustainable”? Founded: 1918 ous improvement”. Will this deliver EC: Panasonic is investing heavily in (incorporated in the necessary results or is a more LA: The words “sustainable” and fuel cell generation and battery stor- December 1935) radical approach required? “green” have become buzz words. age. Do you see renewables chal- Net annual sales 2010/11: They actually mean two different lenging oil in the near term? $108bn LA: Amid a global focus on global things. Sustainability goes well be- Number of employees: warming prevention, governments yond “green” by combining the LA: It is obvious that the demand for 366,937 and international organisations three pillars of economy, society and oil is on the rise more than ever. But Number of consolidated around the world are stepping up environment. We see ecology as part we see the demand for sustainable companies: 634 their efforts. Panasonic supports these of all our sustainability and CSR ef- energy increasing in the coming years (including parent efforts from a point of view that dras- forts since our responsibility for na- due to consumers globally becoming company) tic greenhouse gas emission reduc- ture can’t be separated from our re- more environmentally conscious. COLUMNIST: tion by innovative technological de- sponsibility for future generations This is spurred on by the fact that velopment must be achieved. n
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  • 52. Balance.You’re balancing the short-term pressures of today’seconomic realities with the long-term goals of social responsibility.And so is the global network you find here.A world of peers juggling stretched budgets,shifting priorities, and evolving strategies.And a renowned faculty to provide enduring strategic clarity.Then you bring all that dexterity back to your organization.environment. To make a meaningful difference, visit us at Corporate Social Responsibility program at Harvard Business School ExecutiveEducation exists for one reason: the impact you will make when you get back to yourorganization. Sharpen your ability to evaluate corporate responsibility practices, alignsocial responsibility with core strategies, and create actionable plans for any economic