April 2nd, 2008
Edelman on Sustainability Reporting: Call in the PR Pros
It’s a conundrum every company faces when thinking about sustainability reporting - who reads this stuff anyway and do these reports actually assure anyone of anything? Sustainability reporting methodologies have grown up, for better or for worse, to ape financial reporting, replete with their own standards of assurance audit and verification.
But is there not a better way? Financial reporting methodologies are at least anchored down in regulation, they have to be completed to a certain standard or you go to jail. But if the core of sustainability management is based on voluntary action and collaborative governance then the Achilles heel is in assuring the relevant stakeholder base that the actions you take are material, legitimate, worthwhile and appropriate and not ‘greenwash’.
PR titan Edelman too has recently been exercised on similar concerns. They teamed up Boston College Centre for Corporate Citizenship, Net Impact, World Business Council for Sustainable Development to, funnily enough, reach the conclusion that better corporate communications practices are just the ticket.
But the Edelman folks seem a bit fuzzy on the role of the established quality process for reporting. In describing best practice, Edelman rattles off the Global Reporting Initiative (GRI), SA8000, ISO14000 and AA1000 and suggests that these are all somehow basically interchangeable or equivalent and that:
..a single standard used by all reporting companies does not exist. In fact, a number of different standards have been created to guide the development and evaluation of social reports. Most companies use one of the following four standards.
But each of these standards are fit for purpose in their own right and of this bunch only the GRI can be recognised as the de facto standard for sustainability reporting. SA8000 is basically a quality assurance standard for ethical sourcing, ISO14000 is a quality standard for environmental management whilst AA1000 is actually a sustainability reporting assurance standard which is something quite different from a reporting standard. In fact the GRI standard specifies the necessity for an assurance process to test the veracity of the report produced to GRI standards.
But there is some mileage in the Edelman study all the same and they rightly identify the growing dynamic of employees as key corporate sustainability influencers. Net Impact surveyed their member base of mostly graduate students and found the number one factor for employer selection was a ‘belief that your job will make a positive difference in society’. Incidentally, the Net Impact model of activism is an interesting one - they organize individuals into chapters inside your company whose mission it is to pressure internally for greater take up on sustainability. It’s all terribly viral and disruptive. But it is very innovative and it may well represent a taste of things to come as the millennial generation reaches critical mass in the workforce.
I think Edelman missed an opportunity to major, rather than tantalize on the potential for technology to reshape stakeholder engagement and sustainability reporting as we currently know it.
Many companies are moving outside traditional reporting structures and channels to engage stakeholders in a more effective, bi-lateral manner. This can be through direct stakeholder contact, new web-based CR reporting efforts, or other means that improve responsiveness to stakeholder issues and recommendations.
Also in the recommendations section:
Use web-based reporting and other dynamic communications tools
And here we come circle to the core process of quality reporting and assurance. Simply put, a sustainability report and all the voluntary action in the world is of little value if it does not assure the stakeholder base. The basic assurance standards are based upon principles such as inclusiveness and responsiveness, and these are clear attributes of web 2.0. The application of web 2.0 is clear, not to mention the benefits of more accurate risk identification, moderation and dynamic feedback loops. Alas, we must wait perhaps for the next Edelman report to tackle this.
April 1st, 2008
Headaches in Armonk but will green lose out?
No doubt the IBM top team will be passing around the Tylenol today in Armonk as they figure out what to do next after their temporary exclusion from further contracting with the US Federal government. Sadly it is not an April fool’s joke - the US Attorney’s office for the Eastern Division of Virginia has served subpoenas seeking documents and evidence relating to IBM’s contracts with the US Environmental Protection Agency.
Reports today suggest the investigation centres around some form of alleged improper contact between IBM and EPA employees in the procurement process. According to an email from the EPA:
The action was taken by the EPA suspending official as a temporary measure while the Agency reviews concerns raised about potential activities involving an EPA procurement.
FCW reports the contract in question is an $84 million financial management system bid which IBM previously lost but has since filed a protest on the matter with the General Accounting Office.
IBM has a long history of collaboration with the EPA over many years in helping to move forward the green agenda. IBM is a charter member of the EPA’s Climate Leaders group - an initiative where leading corporations voluntarily publicly disclose their CO2 inventory and targets to the EPA. The EPA in turn provides up to 60 hours of free technical assistance to participating organisations. Under the programme IBM has pledged to reduce its CO2 by 7% to 2012. Similarly, IBM and the EPA also collaborate together in the WWF, Google and Intel led Climate Savers initiative.
These public programmes play an important role for external validation, assurance and benchmarking. In the absence of hard regulatory standards such collaboration helps businesses more effectively set reasonable targets and measure progress. Collaborative governance models like this come in many different hues and they are all critical to success in building a more effective coordinated response to the sustainability challenge from the public, private and civil society sectors. Allowing more flexibility within market place constraints to voluntarily reach targets without the chilling affect of blanket regulation is key. In turn, the experience gives agencies like the EPA a feel for what is achievable in the economy at large and so leads to better regulation when and where it becomes necessary.
But can such workaday relationships with a government agency lead to over familiarity and closer than arms length relationships? Does voluntarily engagement with any regulatory authority lead to increased risk when the church and state divide is breached? Maybe, but such collaboration is essential and in many cases the risks associated with a failure to engage with stakeholders are higher.
However, public sector contracting relationships are particularly sensitive and penalties for improprieties can be severe, clearly the governance hurdles are higher. There is even an OECD convention dedicated to raising the regulatory bar on this worldwide. And the local US Attorney’s office handling this case has highlighted it as no less than one of its four main priorities.
We are committed to investigating and prosecuting public corruption at all levels of government, wherever it may exist, and to rooting out corruption in federal procurement processes.
But the despite the obvious risks, the private and public sector must continue to work together to build collaborative governance frameworks to manage sustainability. At least on the EPA side there continues to be a clear willingness for the important work on the environment with IBM to continue no matter what. In a conversation I had with EPA Press Secretary, Jonathan Shradar he commented:
I trust that IBM as a leader in the technology sector will continue to participate in important collaborative initiatives such as the Climate Leaders Group.
March 21st, 2008
Facebook: Revolution, Weed and Philanthropy
At the risk of endlessly re boiling the cabbage on the now infamous Sarah Lacy interview of Mark Zuckerberg at SXSW, it is worth highlighting some pretty important things he had to say on Facebook & corporate philanthropy before the reporter became the bigger part of the story. The flippant style of interview was disorienting, one minute Zuckerberg is telling us how grassroots campaigners in Colombia organise on Facebook to face down the FARC revolutionary guerilla movement (who Lacy thinks represents the government) and the next Lacy is recalling meeting a ‘tired’ Zuckerberg in a Facebook conference room strewn with pizza boxes, ‘weed’ and a ‘pile of bongs’. Far out, but which story is stretched beyond credulity?
Zuckerberg is clearly passionate about the social utility of the self described social utility. But no, I do not think Islamic fundamentalist kids will draw back from terrorism after sharing empathy over Facebook with some teenage mall rats in the suburban US.
Zuckerberg was right on the money on how Facebook can serve the needs of Civil Society to amplify its voice and leverage power to make the pace for political change. But is this something that Zuckerberg should just let the users figure out? Maybe.
Lacy:
………since you have such a platform, are there things you are doing proactively to do good in the world to take advantage of it, as a company?
Zuckerberg:
I think what we are doing as a mission is a very important thing, helping people communicate more efficiently…..
…. when you ask about philanthropy, at this point in our development we are running the business around break even , we are not throwing off a lot of money, we are focusing on building the infrastructure where people can communicate and work on these things…
Well maybe the examples Zuckerberg gave were a bit clunky but even the celebrated Robert Scoble, despite an immersion at Davos, is at a loss to describe a social mission for web 2.0.
But where Zuckerberg is rock solid, despite Lacy’s leading question, is to insist that the business model itself can and does deliver important social benefits without Facebook having to be ‘proactive to do good in the world’. This is the path to a truly sustainable business where society does not have to rely on largesse but can depend on business owners operating a truly sustainable businesses.
Zuckerberg, despite his age and inexperience, has no problem conceiving the notion that a business can do good and do well at the same time and that it can carry out an inherent social mission as part of it’s commerical strategy. Many CEO’s three times his age with vast experience often fail to grasp this idea which Zuckerberg understands intuitively.
March 7th, 2008
The Cassiterite Crisis - How Tech Boom Fuels Human Rights Risk in Africa
A disturbing article this week in the FT reports how cassiterite sourced through the use of child and slave labour has made it into the supply chains of global electronic goods manufacturers. Cassiterite is a derivative of tin ore necessarily used in circuitry and its use has, ironically, enabled devices to become more eco friendly. But at what cost?
Prices for tin ore have soared on the London Metal Exchange from around $5,000 per tonne in 2003 to more than $19,000 today driven by the demand for consumer electronics. War torn Democratic Republic of Congo (DRC) is home to a huge concentration of tin mines and now a renegade army division has moved in to take control of some of the mines with disastrous results. I spoke with Nicholas Garrett and my former colleague, Harrison Mitchell who penned this report for the FT and they elaborated more on their investigation. According to Nicholas who visited the mines in the Walikale region of DRC:
The manner in which the artisanal miners in Bisie - some as young as twelve years old - are forced to work is a human rights disaster. Under the watch of the 85th brigade some are forced to spend up to 72 hours in narrow tunnels, some of which do not exceed 70cm in diameter. The general safety conditions are appalling, with regular accidents occurring on site.
I highly recommend checking out Mark Craemer’s site to view an extensive collection of moving images from his investigative mission to the DRC tin mines to get an idea of the plight of the artisanal miners at the sharp end of this trade. (Mark kindly gave permission to use the picture displayed here.)
To be fair, managing commodities sourced unethically out of the supply chain is exceedingly difficult. Nicholas and Harrison described the labyrinthine supply chain process in the FT piece:
Cassiterite from Bisie is bought by middlemen linked to exporters and international traders who sell the ore on to smelters that purchase on the open market. At the smelters, the tin from North Kivu is mixed with other tin, refined and sold either directly to solder manufacturers, or through international metal exchanges. Finally, tin solder is sold to manufacturers for use in the production of electronic gadgets.
Microsoft’s response on this issue was quoted in the FT article:
we don’t have visibility into the activities of commodity suppliers participating at the beginning of the hardware supply chain
Hitachi:
will review levels of compliance amongst its primary suppliers with these guidelines and ensure that business practice standards are met by all companies operating within the supply chain
Samsung:
Samsung said that it had now requested that its component providers investigate their suppliers of tin and stated that it is working closely with the Electronics Industry Code of Conduct Extractive Work Group to find the best solution to the problems of sourcing from countries such as Congo
Pioneer:
takes any alleged breach of the code of conduct seriously and will investigate further
I reached out to the joint industry initiatives looking at this issue GESI (Global E Sustainability Initiative) and the EICC (Electronic Industry Code of Conduct) and clearly this is an issue of concern now under detailed and considered review. A study of the social and environmental responsibilities for industry sourcing from the extractive sector is underway and will report next month. The group has recently consulted with human rights NGOs, trade unions and others on the best way to tackle this issue and I am told the group is making good progress:
Our research is expected to be complete at the end of April but we have seen enough data that we’re hoping to begin to determine our next steps
The easy thing here would be for the industry run away from the problem and source elsewhere. But actually, the economic might of the global IT industry could make a real difference through exertion of collective downward pressure on the supply chain. I spoke to others involved in the reform process in DRC for a view on this and according to Peter Eigen, Chairman of the Extractive Industries Transparency Initiative (EITI), a global initiative advocating transparent revenue flows in producer countries:
Pulling out of DRCongo would be the wrong approach. Instead, the global electronics industry has to acknowledge its responsibility, and start to conduct proper due diligence when sourcing their mineral inputs as well as proactively to support the general reform process in the DRCongo.
So there you have it - inextricable proof that we live in a truly connected economy both for better and for worse and when it come to sustainability, environmental issues are nearly always closely linked to human rights. Cassiterite is an issue of industry concern that will continue to be on the radar screen for some time with the ethical supply chain risk rising proportionately with international tin ore prices.
(Disclosure: I am employed by SAP and SAP together with the German government has offered technical assistance towards supporting enablement of the EITI process)
March 6th, 2008
Tech Sector Takes a Kicking in Ethics Ranking
Quite honestly it is hard to take too, too seriously sustainability ratings such as the CRO 100 Best Corporate Citizens of 2008 but they are kind of fun to pull apart none the less. Predictably these rankings generate a fair degree of false humility from the ascendant and gnashing and wailing from the descendant. Says the CRO’s Dennis Schaal:
This list—CRO’s 100 Best Corporate Citizens 2008—matters. If you think for a minute that it doesn’t, then get on the phone or sit upright at your computer to listen to or read some of the phone calls and e-mails CRO magazine received from irate companies that found themselves MIA from the list or lower in the rankings than they would have liked.
Oh the humanity!
Emotions are bound to be running particularly high this year with a seemingly unstable methodology generating a staggeringly wild rate of churn of 79% and the tech sector has taken a real drubbing as a result. Microsoft, Google, AMD, Autodesk, Salesforce.com, Dell and Adobe amongst others all find themselves thrown out of the CRO virtuous 100. But Intel, IBM, Sun and Cisco endure the shakeup with Intel coming in at number one.
Maine based IW Financial presided over the analysis for the CRO list. In 2008, CRO—in partnership with IW Financial, a Portland, Maine, research and consulting firm that did much of the heavy lifting—tweaked the methodology to emphasize the corporate responsibility efforts of large, impactful corporations in eight categories: Climate Change, Employee Relations, Environment, Financial, Governance, Human Rights, Lobbying and Philanthropy. In so doing, we added, renamed, combined or dropped other categories, and gave Climate Change and other issues related to Environment the greatest weight because of their acute importance.
Sadly the CRO listing only evaluates US headquartered firms so we are getting a rather US centric view on the global corporate sustainability agenda. This is unfortunate because certainly both the markets and the issues at hand are truly global so why not the ranking?
What I find a little confusing about all of this is CRO / IW Financial only in December published a top 10 by industry list for US headquartered firms and for the software industry this included Adobe (#1), Oracle (#2) & Microsoft (#9) and yet none of these firms feature in the CRO Top 100 just published. Still, I think Intel’s top ranking is well deserved - do check out the Intel CSR blog here to learn more about what they do well.
I think CRO just maybe on to something here and certainly a shift in the methodology to weigh more heavily towards climate change, policy and performance is a good thing. But to get a more meaningful result CRO / IW Financial also need to consider product and relative operational impact in the equation. And yet for 2008 they have actually dropped the product dimension which was previously factored in. Maybe this explains why the 2008 top 100 ranking contains no less than 18 Utilities and yet not one software company whilst in 2007 we practically had the inverse. That is not to say the Utilities have not performed brilliantly, PG&E for example is doing some really great things on sustainability. But if we are to use these ratings to stimulate a discussion on actual sustainability performance then we need to focus a little more on the core business model and the materiality of sustainability risk & opportunity unique to each sector.
OK, so no ranking is perfect, and the CRO is evolving the methodology and admittedly I do love to nit pick these things. But perhaps the most important purpose such beauty contests serve is to get us all talking and hopefully thinking a little as well. For that, thank you CRO.
March 5th, 2008
PWC On Tech Sector Going Green: Efficiency, Ambivalence and Pretty Pictures
PwC is to be congratulated at the very least for the aesthetics of their latest report: Going Green: Sustainable Growth Strategies. This is a truly handsome report with pretty brown coloured text interspersed with striking images of wind turbines, sail boats, happy children, adults playing in autumn foliage and even slightly more obscurely, a flamenco dancer. I’m gently ribbing PwC here – many of us are a little guilty of presenting the climate change crisis with utopian imagery. Although Freud might have a field day figuring it all out, the masking accurately represents the superficial, ambivalent and confused state of thinking at this tipping point. Apparently executives continue to genuinely struggle to orchestrate, within the constraints of the market, a rational response to the sustainability question.
The tech sector is no less confused with 70% of surveyed executives convinced the tech industry does little or no harm to the environment yet 61% believe it is important that their companies take action to reduce their foot print leading PwC to ask:
is the pursuit of anything green by the technology industries little more than a feel-good exercise resulting in higher costs and possibly insignificant environmental benefits?
So what is the driving all this sentiment and is the green boom sustainable? Executives expect green to be an increasingly important factor in the procurement decision. Yet 70% of tech industry executives believe that although customers say they want green products they are highly resistant to paying extra. This consumer ambivalence is taxing the wits of marketers everywhere. A spokesperson for a US based computer maker explained the conundrum:
The challenge, she says, is “to try and fathom whether this is your customer’s core belief, as is often the case with individuals, or whether it’s the desire to be perceived as environmentally conscientious, as is often the case with businesses.” It’s a subtle distinction, she says, “but it’s an important one as you’re developing product appeals and brands.
Interesting to note a separate report from PwC out last month which asserts the ‘going green’ marketing revolution got started in the blogosphere in 2006 and became a pervasive conversation by 2007. Not totally unconnected, employee sentiment is also a driving issue with grass roots green initiatives increasingly touted as the hallmark of a progressive employer. So is all this green marketing only hubris?
When it comes to brass tacks, the top business driver for going green in the tech industry is energy efficiency followed by regulatory compliance or fear of future regulatory action. The survey also shows that energy efficiency is the number one R&D priority for the industry over the next two years.
Still it is clear at least in the B2B market and there is a mandate for environmental performance in the purchase decision making process and this is especially true of public sector customers.
But tensions over who exactly should pick up external costs are never far from the surface. Peter Zeven, CEO of Philips Electronics North America commenting on mandatory take back programmes:
If you read a newspaper, you throw it in the trash. When you finish with a tire, you throw it in the trash. Why then is it the manufacturer’s full responsibility and cost if you finish with a television?
Coverage of the software sector was weak in this report and PwC missed a trick to more fully explore the role software can play. We learned about Microsoft’s Live Meeting and energy saving settings for Vista but then, inexplicably, we were treated to detail about inter campus eco friendly transport arrangements at Redmond. Laudable, but hardly material or relevant to a discussion on software solutions for climate change. Although I am bias here (see my disclosure) I was disappointed PwC did not consider the contribution enterprise software can make in this space in helping industry become more resource efficient and transparent to public stakeholders along dimesnsions from regulatory compliance through to carbon labeling and emissions trading.
My take on all this: this report shows the tech industry like everyone else buffeting in the winds of change from climate change. Sure, the tech sector may account for 3% of total CO2 although arguably that 3% is helping to make other parts of the economy more efficient through productivity gain and dematerialization. And yes, the manufacturing and services side of the tech business can do its bit to become more eco efficient. But the industry shouldn’t navel gaze too long - the other 97% of the economy needs all the innovative focus and ingenuity the tech sector can bring to bear. Consumer sentiment maybe a little flaky but over time this will certainly harden up into pervasive market demand.
The skepticism I detect in the PwC report is well placed. Similarly last week at the Economist Sustainability conference in London I sensed consensus that the euphoria around green marketing was tipping towards more realism. After the low hanging fruit have been picked, we settle into the long haul struggle to reinvent and renegotiate our economic structures and not just for eco efficiency but also other connected aspects of sustainability including human rights, economic development and transparency. This is when and where the tech sector can make its best mark for sustainability.
February 28th, 2008
McKinsey on Corporate Philanthropy: Mind Your Own Business
If only the Big 4 and the top consultancy firms could run on sustainability thought leadership white papers instead of free cash flow, 2008 would surely be a banner year. The latest epistle is from McKinsey who this week publish an insightful survey on corporate philanthropy.
The study unearths some revealing contradictions between strategic intention and practical action. For example, contrast the stated business goals of philanthropy with the factors taken into consideration in deciding how to focus such programmes.
The highest ranking business goals include brand and reputation enhancement at 70% and employee development at 42% and yet business goals such as managing risk, building product & market knowledge come lower down the list at 19% & 16% respectively.
And when it comes to how such social investment decisions are really weighted it turns out the highest ranking goes to CEO interests at 45% with employee and local community interests joint second at 37%. Stunning to note that brand development only weighs in at 22%, a clear contradiction between the surveyed business goals and how investment decisions are really made. Similarly, alignment with business goals only 23%, stakeholder interest 20% and, sadly, social impact a mere 19%.
So it turns out business and stakeholder interests are taking a back seat to C level pet projects, employee interests and the local community.
Not to be a total grinch here, employee engagement and local community benefits are very worthy goals whilst C level appeasement is a career necessity. But these efforts should be leveraged properly and the survey data contradictions suggest otherwise. In the age of increased corporate accountability perhaps the philanthropy efforts should be better focused on issues associated with other direct corporate stakeholders, areas of operational impact and within the legitimate sphere of influence.
Companies and consumers have long seen corporate philanthropy as a way for companies to benefit the communities where they are located—donating funds to local schools, hospitals, and orchestras, for example. In recent years, however, as society’s expectations of companies have risen2 and as many companies have begun operating in more far-flung locations, they are expected to address a growing list of needs. Companies that 20 years ago were held accountable only for direct, contractually specified, or regulated consequences of their actions today find themselves held to account for the consequences of their actions in areas as disparate as off shoring, obesity, excessive consumer debt, environmental sustainability, and the governance of resource-rich, low-income nations.
Indeed the McKinsey survey suggests that the love affair with the local community just outside the factory gates is somewhat misplaced. Referring to the segment of 20% of respondents who believe they are extremely effective at meeting social goals and stakeholder expectations McKinsey had this to say:
they, too, are much likelier to address the local community with their philanthropic efforts than the community’s importance as a stakeholder would seem to warrant.
The explanation for this is the high influence of employees over a more populist led programme. Of a ranking of the major social and political issues facing corporations respondents choose environment 46%, employee benefits 27%, privacy/data security 24%, political influence 19%, consumer demand for healthier products 19%. Yet the issues corporate philanthropy investment focuses on according to survey include education for a whopping 75%, community for 58% and economic development for 52%.
To achieve a wholly sustainable enterprise the goal must be to focus efforts above the line rather than below. Any efforts more closely linked to the core business operations not only have greater opportunity for sustainable impact long term but also enjoy greater social legitimacy given that corporations do not have unlimited democratic license to make decisions to prioritise social interventions. Below the line donations are too often tokenistic after thoughts.
NetSuite’s announcement this week of the NetSuite Giving programme is a good example of strategically focused giving. NetSuite is targeting in kind technology support towards three beneficiary categories: Registered Charities, Fair Trade/Social Enterprises and Green Start Ups /Environmental. NetSuite have not given an indication of scale but its clear how this links to the future revenue model for NetSuite. However, there is no indication of how NetSuite sees this programme playing a role towards off setting more direct social and political risk it faces.
And this is where it starts to get tricky indeed for software vendors. Is enablement the biggest responsibility the industry should satisfy not just for customers but also for broader social actors? What are the other issues the software industry needs to address? This is a question Business for Social Responsibility is helping a cross industry convening address over the coming months. Watch this space.
February 25th, 2008
Human Rights: An Inconvenient Truth
The debate on business and human rights is set to heat up this year with the 60th anniversary of the UN General Assembly resolution adopting the Universal Declaration of Human Rights (UDHR). The Beijing Olympics and a sharpened focus on the potential winners and losers in the climate change crisis is also a factor. But maybe most significant of all is the imminent release of the next installment from the UN Special Representative on Business and Human Rights, John Ruggie, in his report to the UN Human Rights Council.
The debate on business and human rights so far has been polarized between those who believe only regulatory action can work and those who believe voluntary corporate action and market innovation will be more effective.
So the Human Rights Watch (HRW) release last week of their report Business On The Margins of Profit, Rights at Risk in The Global Economy is very much a curtain raiser for things to come. The main thrust of the report is an inconvenient enough truth, human rights is a pervasive responsibility for all businesses everywhere not just a fringe issue for an isolated set of circumstances. And unlike CO2, it’s not an issue that can be easily ‘offset’.
Business impacts on human rights are not limited to sectors that have received the most attention to date, in particular apparel manufacturing and the extractive industries. Rather, the activities of all types of businesses – large and small, domestic and international, public and private – in all sectors can implicate human rights. To properly combat business related human rights abuse, this broader set of actors and contexts needs to be addressed.
But don’t take it from HRW, this week Forbes Magazine also covers the issue with its report: Child Labor: Why We Can’t Kick Our Addiction.
Beyond labor rights, the HRW study also examines business impact on the right to security, economic and social rights, civil and political rights, non discrimination, indigenous peoples rights and the right to effective remedy and accountability. From the tech sector Microsoft, Yahoo!, Google and Skype come in for some criticism:
Companies such as Google, Microsoft, Yahoo! and Skype, seeking access to the lucrative Chinese market, have assisted and reinforced the Chinese government’s system of arbitrary, opaque and unaccountable political censorship.
Incidentally, in a demonstration of how business can actually exert influence to defend human rights, Jerry Yang last week wrote to Condolezza Rice asking the US State Department to approach the Chinese government in support of Shi Tao. Tao, a political dissident journalist, was arrested by the Chinese government after Yahoo! handed over his user details to the authorities upon request. Many might say this is too little too late but I think this is a good step.
But the issue of business and human rights in the main is less about the rare cases of direct complicity of business in human rights violations. The problem comes in the actions of many partners and suppliers across the value chain and the subsequent dilution of responsibility.
… in assessing the impact of business activity on human rights, it is important to focus on company ties to third parties that commit abuse as well as cases in which businesses themselves directly cause harm. Such third parties are often government agents - such as security forces – working in coordination with companies or on behalf of company interests. Other times the negative human rights impact stems from business failure to take adequate steps to prevent misconduct by employees, suppliers or others with whom it has business relationships.
In the end, Human Rights Watch does not fall squarely into the camp of voluntarism:
..even when codes of conduct or commitments to social responsibility exist they are often not adequately implemented. Additional standards and compliance mechanisms are needed.
In fact, Human Rights Watch joined a petition to John Ruggie of over 100 NGOs led last October by the International Network for Social and Cultural Rights calling on him to specify the limits of ‘self regulation’ in his final report. This petition pronounced harshly on voluntary CSR initiatives.
Due to their voluntary nature, they typically fail to ensure that the principles which they advocate are upheld in practice; even the relatively more robust multi stakeholder initiatives fall far short of what is needed to ensure compliance.
John Ruggie replied on the record to defend the voluntarism as, though hardly ideal, maybe the most viable near term option to maximize human rights defense in a global economy without globally joined up, democratic governing institutions.
It is also worth noting that when the challenge we face is imposing human rights obligations on states there is no “higher” expression of authority than international legal norms and instruments that we can turn to. Hence our options are limited. In contrast, corporations are subject to multiple sources of authority higher than themselves, including home and host states, shareholders, broader market forces, and their more informal social licenses to operate. All can and need to be mobilized in devising an effective response to business-related human rights challenges.
This is an important debate to monitor and I think everyone agrees neither total voluntarism nor total regulatory intervention alone will work but some combination of the two is required. It is the make up of the balance that is now in debate. What is already crystal clear is that we face a complex international regulatory framework made of up of hard and soft compliance obligations. Business leaders have got to be savvy enough to understand that voluntarism does not mean laissez faire and the invisible hand. Voluntarism means hard work to define and negotiate with relevant stakeholders an appropriate response to material ethical and environmental issues relating to the core business.
This will all play out over decades not months or even years but 2008 will be a defining moment in time.
February 21st, 2008
McKinsey and PwC On How Companies Think About Sustainability Management: All Hat, No Cattle
Two separate reports show a massive disconnect on sustainability between C-level strategic intent and real world performance. In the report Confronting Corruption, PWC surveyed executives and whilst 80% reported their companies had an anti corruption management programme, only 22% were confident such programmes were effective. On climate change, the McKinsey report, How Companies Think About Climate Change, similarly records more than 60% of executives think climate change is strategically important but less than a third are doing anything substantive about it.
So what is the explanation? Simple enough, executives are still just awakening to reality of managing sustainability within the context of global business operations.
Others are just waking up to the risk, often because high profile enforcement penalties have caught their attention or because they are seeking opportunities in unfamiliar markets.
The struggle against corruption is fundamental to sustainable development. Corruption undermines the development of a functioning market, its governing institutions and traps the poor in poverty. But the poor aren’t the only victims, last month Stanford Graduate School of Management professor Ernesto Dal Bo released a paper showing corruption not only damages the community but it also damages the firm itself through eroded efficiency. Indeed corruption has the potential to undermine progress on the climate change challenge. Last month an influential member of the ethical investment community in London shared her concerns with me that corruption associated with a future carbon certification process could undermine the emergence of a robust market for global emissions trading.
But in the case of both climate change and corruption is regulation the answer? More than 80% of the respondents to the McKinsey survey accept the inevitability of climate change related regulation within 5 years and most expect this to have a negative effect on profitability. Yet, if managed well, 61% of executives think climate change has the potential to have a positive impact on profitability.
When it comes to corruption Wayne Murdy, Chair of Newmont Mining expresses similar sentiment about the role of regulatory versus voluntary action:
You need governments on one side because they provide the teeth. But to me it’s very important that the private sector drive the initiatives because they know their business. They know the hot buttons or the risky areas or issues. So they can focus on those.
No small task alas. Jermyn Brooks, head of private sector engagement at Transparency International says:
You have to look at all the internal systems to make sure that they’re not countering your anti corruption policy. And that’s a big job.
And that is the crux of the matter. Business leaders want to do the right thing, see the strategic value but the current business models, like super tankers, are going to take some time to turn around.
(Disclosure: SAP supports the work of Transparency International and I sit on the steering group of the Transparency International Business Principles)
February 20th, 2008
Lawson on Corporate Social Responsibility:Thou Shalt Obey The Law
My, my! Industry Corporate Social Responsibility (CSR) white papers are becoming like buses - nothing for ages then all of a sudden three in a row. First the Economist Intelligence Unit supported by SAP, then IBM and now Lawson enters the fray with the oddly titled The Convergence of Corporate Social Responsibility and Information Technology published this week on Retail Solutions Online.
Jeff Frank, Lawson Vice President for Marketing authored the paper which gives a good over view of CSR definitions, suggested key trends and the Lawson approach to leveraging IT for better management of CSR. The report draws heavily from 2007 AMR research data in identifying three key trends which include greater formalization of CSR management, compliance as a driver of environmental management and more strategic use of IT for CSR management.
Based on AMR data, Lawson concludes that environmental investment dominates for manufacturers and distributors with service organisations maintaining a closer balance between social and environmental investment. AMR predict environmental investment will increase in future and philanthropy will decline in overall share.
In fact, I think the whole data set from AMR is too generalised to be of real significance here. CSR has to be understood in the specific context of the specific industry and cannot sensibly be aggregated up and split between manufacturing and services this way. For example, I reckon airlines are a good example of a service business where the environmental issue is paramount and human rights is a social issue which almost certainly trumps in risk ratings for an apparel manufacturer.
Social risk may also be a great deal more variable, dynamic and difficult to predict in terms of stakeholder expectations compared to environmental risk. I think, over the long run, social risk and public assurance will be the more difficult issue for all firms to manage and may end up making the largest call on information resources. In the short run, environmental performance management will dominate the agenda. But as industry runs up against constraints and external stakeholders become frustrated, there is likely to be an increased demand for information on the firm’s overall sustainability strategy. Stakeholders will ask for additional assurance that the constraints to further environmental performance are real and they may seek to bargain for additional performance against the economic and social dimensions of sustainability. A simple example of this might be negotiations for investment in carbon offsets having established that the firm cannot achieve further CO2 reductions in direct operations. Voila! The environmental compliance management programme has now morphed into an economic, governance and social performance issue.
The Lawson report identifies compliance as the leading driver of environmental investment.
..compliance with regulatory requirements is the leading driver, especially for manufacturing and distribution organizations. This is logical since compliance changes the scenario for an organization from a ‘nice to do’ to a ‘need to do’.
But CSR has always been a compliance plus concept based on voluntarism. If we accept voluntarism in lieu of regulation then, by default, we accept responsibilities that must be managed beyond the realm of legal compliance. In other words, just obeying the law is hardly worth writing home about. The real value in CSR is understanding what is really not just a ‘nice to do’ but a ‘need to do’ without having a legal code alone to determine this distinction for you. The essence of this is good risk and governance management as well as a keen eye for business development in line with rapidly changing stakeholder expectations. In the global economy businesses are largely alone to figure this out. So while the study identifies legal compliance as an immediate driver, this is far from the end of the story for CSR. In fact it is just the point of departure for CSR.
There really is consensus though on the increasing importance of IT to align the mounting information requirements on CSR streaming in from all sides: from customers screening their suppliers (you), from investors, from NGOs, from employees, and so on.
What is promising here is that Lawson are stepping up to express an IT vision for how businesses can better manage CSR across enterprise systems with a coherent internal control system and accessible business intelligence. This is indeed an uncertain subject area for software developers to dare to tread and it is exciting now to see a few of the business software houses starting to exercise serious grey matter on this.
James has more than 15 years of experience working on corporate sustainability issues from both the corporate and NGO campaigning perspective. See his full profile and disclosure of his industry affiliations.
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