Title: A stitch in time.
Source:
Economist; 1/19/2008, Vol. 386 Issue 8563, special section p12-14, 3p, 1 Color Photograph, 1 Graph
Document Type:
Article
Subject Terms:
*SOCIAL responsibility of business
*RISK management
*CORPORATE image
*BRAND image
*PUBLIC relations
*BUSINESS planning
NAICS/Industry Codes:
NAICS/Industry Codes 541820 Public Relations Agencies
Abstract:
The articleessay writing http://www.ukassignment.org/daixieEssay/discusses how corporate social responsibility practices are often used as a risk management vehicle. The article explains that corporate social responsibility practices can limit the damage to the brand and the bottom line that can be inflicted by a bad press release, consumer boycotts, as well as dealing with the threat of legal actions. The article presents several instances of when a corporation used the practices to avoid a bad public image.
Full Text Word Count:
2213
ISSN:
0013-0613
Accession Number:
28548165
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Section: Just good business
A stitch in time
How companies manage risks to their reputation
Business leaders embrace corporate responsibility for a number of reasons. Lee Scott, the CEO of Wal-Mart, was converted to it by the aftermath of Hurricane Katrina (which showed his company's full potential to serve "not just our customers but our communities, our countries and even the world"). Others are lured by the glamour of making pledges at the Clinton Global Initiative. For some, though, it is public embarrassment and lawsuits that concentrate the mind.
Take Yahoo!, a technology company that ran into difficulties over the jailing of two Chinese dissidents after the company handed data on them to the Chinese authorities. In November Yahoo!'s chief executive, Jerry Yang, and its top lawyer had to listen to Tom Lantos, a congressman, denounce them as technology giants but moral pygmies. The following week Yahoo! reached an out-of-court settlement with the families of the jailed men.
Trouble seems to come in waves, pounding industry after industry, each time for a different reason. It has hit the oil business because of spills and explosions. Mining companies have come under attack for collusion with corrupt governments. Clothing companies have faced scandals over the use of sweatshop or child labour. The petfood industry was pilloried after cats were killed by tainted imports from China. Mattel and other makers had to recall millions of toys made in China on safety grounds.#p#分頁標(biāo)題#e#
Most of the rhetoric on CSR may be about doing the right thing and trumping competitors, but much of the reality is plain risk management. It involves limiting the damage to the brand and the bottom line that can be inflicted by a bad press and consumer boycotts, as well as dealing with the threat of legal action.
In America, the legal instrument of choice (as in the Yahoo! case) is the Alien Tort Claims Act, which allows companies to be taken to court in America for violating human rights abroad. Under international law only states can be held responsible for violating human rights, but allegations of complicity in state abuse can provide a hook for legal claims against companies. Even if it does not get as far as a trial, this can be embarrassing and costly for companies.
Three years ago Unocal, a Californian oil company, settled out of court (reportedly for some $30m) over allegations of complicity in abuses by government soldiers against villagers in Burma during the construction of a pipeline in the 1990s. However, the company denied any responsibility. Another oil company, Talisman Energy, discovered that being Canadian was no protection against a legal claim in the United States. It was facing a lawsuit by the Presbyterian Church of Sudan alleging complicity in genocide in Sudan, where Talisman had invested in the Greater Nile Oil Project--even though Talisman, under pressure from human-rights groups, had sold its stake back in 2002.
Time and again companies fail to see the problems coming. Only once they have had to deal with, say, a lawsuit or strong public pressure do they start to change their thinking. The CSR industry believes that a broader understanding of the world in which they operate can help companies manage these risks better (and, if they are lucky, grasp some opportunities too). "Much of the work we do is to get big incumbents to recognise a different future," says John Elkington of SustainAbility, a consultancy.
What might the next wave of trouble be? Corporate corruption, perhaps, speculates Toby Webb, the editor of Ethical Corporation magazine. In South Africa, for example, corruption is very much part of the CSR agenda. At two of Germany's biggest companies, Siemens and Volkswagen, heads have rolled because of corruption scandals. Mr Webb reckons this could become a much bigger trend over the next couple of years.
Chain reaction
For the moment, though, the biggest problem many companies have to deal with is something that has sprung from rapid globalisation. It is the risks associated with managing supply chains that spread around the world, stretching deep into China, India and elsewhere. For some, this is a challenge on a grand scale: Nike's contractor network, for example, involves some 800,000 workers.
Firms can set standards of behaviour for suppliers, but they do not find it easy to enforce them. Unscrupulous suppliers may cheat, keeping two sets of records, one for show, one for real. Others, under intense pressure to keep costs low, may cut corners--allowing unpaid overtime, for example, or subcontracting work to other firms that escape scrutiny.#p#分頁標(biāo)題#e#
And on top of the need to guarantee labour standards and product safety across an extended network, a new demand is starting to emerge: companies have to consider the environmental "sustainability" of their suppliers too. So inspection regimes are set to intensify, at a time when audit fatigue has already become a problem for suppliers. Surveys suggest that a typical garment factory may expect to be inspected 25 times a year. Levi Strauss, Timberland and others in the industry are starting to collaborate on inspections to reduce the burden on suppliers.
Each industry has its own specific issues,essay writing http://www.ukassignment.org/daixieEssay/but there are some common themes in how firms are approaching the risk-management side of CSR. One is to put in place proper systems for monitoring risk across the supply chain, including listing who the suppliers are, having well-established channels of communicating with them and auditing their compliance with ethics codes. Basic as it sounds, even many big companies fail to do this: 60% of the 2,000 large companies surveyed recently by Integrity Interactive, a risk consultancy, said they did not require suppliers to enforce a code of conduct. Only 42% regularly assessed ethics risk in the supply chain, and just 12% had a web-based portal for their suppliers.
Beyond the basics, prudent companies include a CSR perspective when considering new projects. In such cases CSR is not a public-relations exercise but part of systematic due diligence for new investments. The social and economic impact of the firm's existing operations is also closely monitored to reduce the risk of a backlash from local communities, activists or national governments.
Anglo American, a mining company, is among the most sophisticated in its approach to managing its social impact. It has developed a "socio-economic assessment toolbox" to identify local stakeholders, see how projects affect them and draw up plans to improve the outcome and develop trust. The company says this provides a better understanding of local interests and helps it to avoid potential conflicts. Last October Cynthia Carroll, Anglo's CEO, announced at the annual conference organised by Business for Social Responsibility in San Francisco that "as a contribution to spreading good practice" it would make the basic version of its toolkit publicly available.
Involvement in social programmes, especially in poor parts of the world, is an increasingly fashionable way for a company to burnish its brand and, with luck, protect itself from attack. Which self-respecting CEO these days wants to be caught doing nothing for Africa? But sometimes these programmes also have a clear business rationale. Anglo American, for example, says the $10m a year it spends on HIV testing and treatment in Africa is starting to pay for itself through reduced absenteeism and longer lives for skilled workers.#p#分頁標(biāo)題#e#
The big drugs companies, for their part, were greatly embarrassed by accusations of ignoring the needs of Africans dying from HIV/AIDS, so GlaxoSmithKline and others decided to make HIV drugs available for no profit. Merck has entered an innovative partnership to fight AIDS with the Bill & Melinda Gates Foundation and the government of Botswana, where the proportion of sufferers being treated is now the highest in Africa. Since 1987 Merck has also donated 1.8 billion tablets to treat river blindness, reaching more than 60m people a year in Africa, Latin America and the Middle East. All this helps to quieten the critics. The involvement in emerging markets may even prove a good investment in future growth.
Novo Nordisk, a Danish company that supplies a big share of the world's insulin, has written the "triple bottom line"--that is, striving to act in a financially, environmentally and socially responsible way--into its articles of association. It reckons that having the creed anchored so firmly is making it more alert to both risks and opportunities.
Comfort in numbers
But risk management can be a lonely business. Mattel's monitoring of its suppliers is said to have been state-of-the-art, but that did not save it from costly embarrassment in China. With the best will in the world and the most energetic efforts to create codes, talk to stakeholders and support hospitals and schools, companies can still find themselves uncomfortably exposed, especially as what is expected of them can vary so much from country to country.
The answer, many have decided, is to spread the risk. Groups of them are getting together to agree on codes of conduct--usually within a particular industry, but also across industries and in consultation with governments, UN agencies and NGOs. This has become one of the most striking recent trends in CSR.
The mining industry, for example, has joined with governments in the Extractive Industries Transparency Initiative (EITI), launched in 2002 by Tony Blair, then Britain's prime minister, to tackle the problem of government corruption in resource-rich countries. Britain, America, Norway and the Netherlands, together with a number of NGOs and big energy and mining companies, have signed up to a set of Voluntary Principles on Security and Human Rights. The finance industry has adopted the Equator Principles, a benchmark for managing social and environmental issues in project financing.
There's more. Diamond producers encouraged the Kimberley Process, a certification scheme to combat trade in blood diamonds. The Forest Stewardship Council provides certification for the forestry industry and its products. A group of companies that want to find pragmatic ways of applying human rights in global business have formed the Business Leaders Initiative on Human Rights (BLIHR), which now has 14 members. Technology companies in America are working on a code of conduct on human rights, not least to avoid the sort of trouble that Yahoo! encountered in China. In Britain the Ethical Trading Initiative brings together retailers, trade unions and NGOs to support corporate codes that improve working conditions across global supply chains.#p#分頁標(biāo)題#e#
Such "multi-stakeholder initiatives" tend to involve companies that have elevated CSR to a strategic level. Some initiatives will not work: sitting down with competitors, let alone NGOs, is not easy. But the effort can be worth it. When Gap encountered a problem over child labour in India last October, the damage proved a "two-day wonder", according to Mary Robinson, the president of Realising Rights: The Ethical Globalisation Initiative. She reckons this was due to Gap's swift response and its involvement in initiatives like BLIHR (which she chairs). When Gap joined BLIHR three years ago it admitted it had some problems--and found itself winning praise for transparency rather than being pounced on for its transgressions.
Whether these initiatives always serve wider interests (as opposed to those of particular firms) is harder to tell. Some companies may benefit more than others: for De Beers, for example, the Kimberley Process reduced a threat to the industry and if anything increased its own brand's dominance. The introduction of more humane conditions for textile workers in places like Bangladesh risks losing them their jobs unless productivity can be improved at the same time, stresses Alex MacGillivray of AccountAbility, a think-tank involved in a multi-stakeholder initiative called the MFA Forum. As for the EITI, there is some evidence that it has reduced corruption in Nigeria, according to Mr MacGillivray, though it may be just shifting the graft to other ministries. Some NGOs would prefer hard law rather than the "soft" rules involved in many of these initiatives.
How committed are companies to the rules they claim to live by, whether their own or an industry-wide code? "What concerns us," says Daniel Feldman of Foley Hoag, a law firm with a CSR practice in Washington, DC, "when most corporate-responsibility effort is on PR and communications, is that we don't know whether firms are actually implementing the rules." Is there a reporting requirement? Is the CEO keen?
For a few companies that want to be leaders in the world of corporate citizenship, the answer to those questions is clearly yes. And even if such companies first discovered CSR the hard way, by suffering a knock to their reputation, many now see it as more than just a tool of risk management; they are convinced that it can be a competitive advantage and a source of growth in its own right.
Nike, for example, came to the subject in defensive mode: it was attacked in the early 1990s, when the idea of corporate responsibility had barely surfaced. Now Hannah Jones, the vice-president of corporate responsibility (who reports to the chief executive), talks of "return on investment squared": to investors and to the community. She sees corporate responsibility as providing a fresh source of innovation. She no longer bothers to attend CSR conferences full of other corporate folk; these days she prefers to network with social entrepreneurs. And like many in the CSR world she has high hopes for more emphasis on "sustainability".#p#分頁標(biāo)題#e#
GRAPH: The business case
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