Corporate responsibility with Tom Rotherham

Choice Editing, Climate Change, and Consumers

A recent report by Accountability and Consumers International, “What Assures Consumers on Climate Change,” addresses some issues that have been floating around regarding consumer action and climate change. Namely, that while consumers are aware of climate change and want to do something about it, they remain confused about what they can do about it.

Strikingly, the research found that while consumers want more information from businesses about the climate impacts of their products, consumers do not trust information from businesses on climate change.  There is not a shortage of messages; just a shortage of trusted ones.

Perhaps consumers are suffering from label fatigue, or perhaps they are confused when labels seem to contradict each other (fair-trade versus buy-local?). This tees up one of the most important ideas to come out of the report: Choice Editing.

Choice editing is similar in concept to ethical investing: it simplifies things for the consumer. A store that choice-edits makes it easy for consumers because they can trust all of the products they have to choose from. Some retailers are picking up the concept already. Co-op Supermarkets only offer the highest energy efficiency appliances, and Marks and Spencer only offers free-range eggs.  The message is simple: don’t look at the product label; look at the retail brand.

Coming to your store soon

Could this also be the future for climate-friendly consumerism? How it will all play out remains to be seen. But choice-editing might go a lot farther than just slapping another label on every product sold.

But one also has to ask: is concern about climate change really strong enough to convince the mainstream high-street shopper to turn his or her back on the cult of consumer choice?  Are we ready for stores to tell us what is right and wrong?  If this continues, it will not be long before governments get involved…

Idiots, crooks and suspended sentences

For a company whose reputation for accuracy and honesty was built on faithfully reporting the news, its a bit offputting to find the BBC in the headlines as much as it is these days.  Today's edition finds BBC Director General, Mark Thompson, apologising for a pattern of deception extending across many of its high-profile phone-in competitions - including on charity programmes for Comedy Relief, Sport Relief and Children in Need.

The importance of strong values was one of the themes highlighted in the recent Tomorrow's Global Company Inquiry - a multi-stakeholder process that included BP, Infosys, Ford, Amnesty International and the International Institute for Sustainable Development.  While many people scoff at the fluffiness of values, this BBC episode underlines why intangibles are so important, and can have tangible impacts.

What is the Beeb's response?  As reported in today's FT, all staff will now be required to attend an ethics course.  Moreover ... Mark Thompson has warned that some senior staff may be suspended.

What?

A pattern of systematic ethical lapses which results in the BBC lying to its audience, with impacts also on the reputation of several high profile charities, and the reaction: staff attend a course, and there is a risk that some staff are suspended.

Yes: staff should be helped to understand what is expected of them in the workplace.  Changing employee behaviour requires helping them understand what is right and wrong, but also showing them that ethics is an important part of their job. 

So a course on ethics might help.  But only an idiot or a crook would think that falsifying competitions is acceptable behaviour - in particular at a company whose business model is built on trust.  If heads do not roll, staff will understand that upholding the BBC's values is not really an important part of their job.  That will not be their fault, it will be Mark Thompson's fault for not sending the right signals.

If, however, staff cannot be fired for serious unethical behaviour because of the terms of their employment contract, that is an even bigger problem.

FairTrade or Foodmiles ?

For the past week a debate has been unfurling on popular CR list-serve CSR-Chicks (the application criteria are flexible).  At issue: is it better for rich-world consumers to support farmers in developing countries by buying FairTrade, or to protect farmers in developing countries by buying locally to reduce foodmiles and limit the catastrophic risks posed by climate change.

My question: How long will it be before Tesco helps us poor confused, conflicted, concerned consumers by investing in emissions reductions programmes so that their credits can be used to subsidise the foodmiles associated with FairTrade products - or any other product from poor Kenya, Bolivia or Viet Nam?

The FairTrade vs Local debate is a classic case of how complexity can stun concerned people into inaction.  It also suggests a few things:

First, there are no easy answers.  Balancing environmental, social and economic objectives involves tough decisions.  People are not, and cannot be expected to be, consistent in how they deal with this complexity.  I might choose FairTrade one day and local the next; I might choose the lowest cost (to me) one day and the premium green brand the next.  This is not inconsistent: it reflects reality.  Reality is complex; ethical preferences are not homogenous.

Second, it points to the need for some guidance and a degree of "benign dictatorship". If I know what the right thing to do is, I'll try to do it (no promises).  If I am not sure what the right thing to do is, and I am busy, had a rough day, stubbed my toe on the way into the shop ... screw it: if it was that important they'd make it easier on me to do the right thing.

Third (self interest) - it highlights the importance of good communication, designed by people who actually understand the issues. 

In the absence of the right information down traditional channels, we turn to trusted arbitors.  NGOs, Consumer Groups, celebrities ... rightly or wrongly, for good or bad, all of these groups influence purchasing decisions.  But only government has the mandate to consider all the pros and cons (and short and long term issues) in a coordinated way.  Some market failures need government input.  Perfect information is a dream; perfect markets are too.

Governments have showed us that they are happy to leave this issue to companies, civil society and market mechanisms.  We should not expect much from DEFRA and DfiD to help us figure out the right thing to do.

So what happens next?  Back to my original question:

Tesco has decided to label each of its 70,000 products with a carbon footprint label.  At some point, consumers will point out that this information is pushing them to reduce the environmental impact of their purchases at the expense of their support for economic development.

So, how long will it be before Tesco helps us poor confused, conflicted, concerned consumers by investing in emissions reductions programmes so that their credits can be used to subsidise the foodmiles associated with FairTrade products? Or is doing the right thing too complex?

Mixed messages from Brussels on CSR

On 13 March 2007, the European Parliament voted 25-15 in support of a non-binding resolution on Corporate Social Responsibility (CSR). The resolution, drafted by UK Labour MEP Richard Howitt, calls for a new approach to CSR and outlines a number of policy decisions – many of which go far beyond what the Commission proposed last year.

At a general level, the most significant difference between the EU Parliament and the Commission is that the Parliament has called for an end to an exclusively voluntary approach to CSR.

For a taste of what’s inside, consider clause 5, which states that the EU Parliament:

“ (…) believes that the Commission should also consider establishing a list of criteria for enterprises to respect if they claim to be responsible;”

Or this from clause 61:

“Believes that the international dimension of CSR should be a stimulus for guidelines to be drawn up promoting the development of such policies throughout the world;”

The Report also recommends that the Commission:

    * Includes mandatory social and environmental reporting to what must be included alongside financial reporting requirements;
    * Extends the responsibility of directors of companies with more than 1 000 employees to encompass the duty for the directors themselves to minimise any harmful social and environmental impact of companies' activities;

The resolution seems much more aligned with NGO positions, such as the CORE Coalition and the European Coalition for Corporate Justice (ECCJ). Part of this might have to do with the fact that business lobbyists recognize that the Parliament has no power – and so were not engaged in the drafting of the resolution.

But it is hard to see how the unelected Commission can avoid re-thinking their approach now that the elected Parliament has weighed in so heavily. And even if there is no action at the Commission, this will also provide ammunition for national agenda-setting, and could raise the volume on the CSR debate in Europe.

Add your thoughts to this topic

Anything you can do, I can do greener.

Weeks of green posturing between David Cameron and Gordon Brown over carbon taxes for air passengers have hopefully been cut off by the government’s publication of the draft climate change bill on 13 March 2007.

Offering binding emissions cuts across a range of sectors, the bill has the potential to put the emphasis firmly back where it belongs: reducing overall emissions levels quickly, without prejudice to where savings come from, and so without unnecessary economic disruption.

Rather than squabbling over the price of airline taxes, government leaders should focus on the price of carbon and ensure a robust and reliable emissions trading scheme, both in the UK and in the EU, to ensure a predictable policy framework for companies to follow. Low predictability from government means less long-term planning by companies.

But the draft Bill looks likely to vindicate the (at the time) bold steps taken years ago by leading companies who had the foresight to recognize a transformational issue when they saw it.

In truth, the writing was always on the wall. The real puzzle is: how did some Directors conclude that business-as-usual could ever be the right decision on climate change?

Perhaps the newly codified Directors Duties might prompt Boards to consider environmental issues a bit more carefully in the future. Companies, shareholders and the environment would thank them for it.

Winners:

· Enlightened self-interest

· Companies selling energy efficiency (from the Prius to home insulation)

· Companies that have already upgraded to clean technology

· Low-carbon energy producers

· Carbon traders

Losers:

· Business-as-usual

· Anyone who didn’t chose clean technology in the last procurement cycle

· Companies who haven’t integrated energy efficiency into product development

· Potentially … exporters in developing countries

Add your thoughts to this posting

The problem is not private equity – it is privacy and private interests.

On 16 March over 40 trade union movements from around the world will gather in Paris to discuss the problems of private equity. They will be gathering under the aegis of the OECD Trade Union Advisory Committee.  The OECD discusses policy issues and, sometimes, it creates rules for governments to implement.

Anyone who is surprised at the scope and intensity of the present attack on private equity has not been paying attention for the past 2 years.  One example among many: in the final days of debate on the UK Companies Bill, a number of questions were raised in Parliament about why publicly owned companies were treated differently than privately owned ones. 

Three general trends are at play, and they suggest that the private equity sector is not the problem.  Rather, they are a convenient proxy for a much more fundamental and long-overdue debate on the relationship between financial and non-financial capital and value-added, and the degree to which those in positions of influence should be held accountable for their impacts. 

Trend 1:  Other than government, the financial services sector is now the most important public policy lever.  At the 2002 World Summit on Sustainable Development, companies and governments pushed for a stronger focus on voluntary, market-based approaches to sustainability: i.e. less regulation.  No one influences ‘voluntary’ corporate behaviour more than the owners of capital.

Trend 2:  Investors and companies are deciding to pay more attention to non-financial risks & opportunities and non-financial value creation.  Be it intellectual property; brand equity; staff turnover; customer satisfaction; … there is more to long term success than P/E ratios and cash flow.  Environmental, social and governance issues are increasingly seen as an important part of the non-financial bundle.

Trend 3:  Governments are beginning to cement this new understanding into corporate law.  The 2006 UK Companies Act enshrined the concept of enlightened shareholder value (ESV) in the newly codified Directors’ Duties.  That is, companies need to consider not only the financial returns to shareholders, but also their impacts on the environment, communities, employees, society and the supply-chain.  And they need to disclose how they fulfil this duty in an enhanced Business Review.

So: if privately owned companies can have as significant an impact on society as publicly owned ones … why do we not expect the same responsibilities and disclosure from them?  And why shouldn’t we expect as much pressure on the owners of private equity as public equity?

Other parts of the financial services sector have developed codes or principles in response to similar attacks.  This includes most notably the project finance sector (the Equator Principles) and institutional investors (the UN Principles for Responsible Investment). 

Does the private equity sector need its own code of conduct?  Maybe. 

Does it need to demonstrate how it protects non-financial value?  And does it need to be more accountable for its impacts on society?  Absolutely.

I have worked with a number of sectors that have come under attack, including chemicals, forestry, large dams, institutional investors and pharmaceuticals.  In each of these cases, a tipping point is reached at which the reputation of the sector as a whole impinges on even the most enlightened and responsible company. 

If the private equity sector is not yet at that point, then there may be a comparative advantage to be had by those funds than can inhabit the “responsible” ground.  But if we are past that point, then regulation or a sector-wide, multi-stakeholder initiative is needed.

A final note: Workers do not create trade unions; society does, through laws that ensure freedom of association and collective bargaining rights.  The private equity sector is not at odds with the trade union movement; it is at odds with an institution that society has created to protect the rights of workers.  They should keep that in mind.

Add your comments to this topic

What if climate change really isn’t your company’s biggest priority?

Tesco recently announced it would put a carbon footprint label on all 70,000 of its products.  Marks & Spencer is going carbon neutral.  Wal-mart and Asda are promoting their new green stores.  Under the carbon disclosure project, the top 225 institutional investors – with more than £100 trillion under management – have asked the 2000 biggest global companies for information on their carbon emissions. 

If your opinions are shaped by news about what other companies are doing, it seems that climate change should be every company’s biggest priority. But just because some companies focus all of their attention on climate change doesn’t mean your’s should.

But isn’t climate change one of the world’s biggest problems?

True. If left unchecked, global climate change could have catastrophic consequences and impacts on all companies. But as my colleague Rachel Madan points out, “we’re presently in reaction mode: in order to be seen to be doing something, a huge number of companies are rushing in to address climate change.”

… where wise men fear to tread

Too many companies let uninformed external expectations dictate their internal priorities.  In the context of climate change, this can happen in two ways.

First, companies can focus on the wrong culprit.  Consider this: air travel is responsible for between 3-5% of carbon emissions.  The construction and operation of buildings is responsible for roughly 40%.  Air travel gets all the column inches, and Blair isn’t asked about the insulation in his attic.  This makes no sense.

Second, companies can forget that their priorities should be driven by both external expectations and internal analysis.  HIV/AIDS poses a more immediate threat to Southern Africa than climate change does.  Not every company in Southern Africa provides anti-retrovirals because not every company faces the same exposure to the issue.  Similarly, not every company in the UK should necessarily prioritise climate change.

Choose your battles; stand your ground

Companies looking for ways to make the world a better place are not exactly starved for choice.  But who gains if companies switch focus every year or two?  The objective must be for companies to analyse that issues are in their self-interest to address, and then to pay consistent attention to them.  Only consistent action can solve problems – either for companies, or for the world.

Just because nobody will tell you to stop addressing climate change does not mean that it is the best use of your resources.  Don’t be lazy: do the analysis and then stand your ground.

Add your thoughts to this topic

Inflation explained: a billion more consumers; still just the one planet

We want a billion Chinese and Indian workers to make us more stuff cheaper... we tell ourselves that this is good for them too: they get richer.

The other half of that bargain is that we want a billion more Chinese and Indian consumers to buy our stuff ...

We are not surprised that the price of oil, copper, steel etc., rises when China and India need more of it.

Should we not, perhaps, start reaching similar conclusions about the products made with them?

As long as something grows at a rate more slowly than we use it, it has the properties of a finite resource.

The Chinese and Indian economies are growing at between 7-9% per year.
 
Will the trees listen to reason when we explain that they need to grow a bit faster please?

I'm not a central banker, but then I guess that Mervyn King is not an environmental economist.

Some companies are already integrating environmental issues into the main body of their Annual Reports.  This is because they understand that they are core to the business' success.

Is there a day in the future when Mervyn will mention environmental issues in his letter to Gordon Brown to explain why inflation is more than 1% above target? 

Odds, anyone?

Add your thoughts to this topic

Home Depot & Bob Nardelli: The Enron of remuneration, or of accountability?

On 3 January 2007, after a consistent share price decline, Home Depot announced that its CEO, Bob Nardelli, would be leaving the company with a $210 million pay-out.

This stretched to breaking point the public’s Holiday cheer and created a media circus.  In most coverage, however, the story was about the size of the ‘reward for failure’, and the conclusions pointed to the weakness of the remuneration committee. 

From my perspective, the real story is the company’s willful ignorance of its investors; and the really valuable lesson is the one that explains why the remuneration committee was weak: a lack of accountability. 

Seen from this perspective, investors would have known to expect trouble on 1 June 2006, when Nardelli successfully encouraged Home Depot’s Board to stay away from the AGM.  It would have been illegal to stop investors from attending; Nardelli did the next best thing.

While the payments that some CEO’s get – even for weak performance – may seem absurd, one can at least conceive of situations where it might nonetheless be justified.  It is impossible to justify a decision to reduce communication between investors and the Board.

It is ridiculous that investors were denied access to the Board at Home Depot’s AGM; it is frustrating to wait 30 minutes on hold to notify a telephone operator of a fault; it is disheartening to be unable to get an oil company’s management to heed employee warnings about corrosive pipelines; it is maddening to have one’s community threatened by a chemical plant without prior information and engagement.

Feedback mechanisms are an essential part of the management process.  The general rule is obvious: companies that want to keep stakeholders happy need to engage actively with those stakeholders.  Prioritise them; but never ignore.

The Nardelli story is not about the money or the missed targets: it is about the breakdown of accountability, the lack of engagement with a fundamental stakeholder, and the invariable result: crisis. 

Companies that want to be ‘future proofed’ must start looking at accountability – and stakeholder engagement – as an opportunity, not a threat.  The Baker Report on BP’s safety culture tells the same story.

Add your thoughts to this topic

Believe it or not...

Following on from BA’s brush with the cross in late 2006 [BA and The Cross it Bears], religion is as good a theme as any to start the New Year. 

In yesterday’s Financial Times (8th January 2007), John Kay wrote about the parallels between religion and environmentalism. While I’d prefer to see the subject addressed with a little less sarcasm, I have to admit that I see his point. 

In particular, I think that Kay quite rightfully concludes by warning us (i.e. society) of the risk that environmental extremism – like religious extremism – turns a (positive) mechanism of sharing and communicating values into a (negative) system that perpetuates a defeatist quest for nirvana. 

One thing that I think Kay gets wrong, though, is the lesson that he draws for companies.  He says:

“Business leaders do not themselves have to believe [environmentalism’s] doctrines. Indeed we should be wary if they do: business linked to faiths and ideologies is a sinister and unaccountable power.”

Kay is wrong because he characterizes environmentalism simply as a compelling moral narrative.  But people do not “believe” in environmentalism simply because they need guidance in their life.  The reality is that people have adopted an environmental ethic because of what they see around them –unsustainable resource- and ecosystem-use – and they do not like it. 

If the only impact of environmental destruction was that people’s purchasing preferences were influenced by an environmental ethic, then I could agree with Kay.  But the reality is that environmental destruction also restricts their purchasing options. 

No more fish in the sea = no more fish and chips, no matter what my belief system is.  No more trees on the slopes of the mountain = landslides and flooding: perhaps no more home.  A high proportion of toxins in the food chain = higher rates of infertility: perhaps no more children. 

Kay treats environmental protection as a moral choice.  That is a bit like saying choosing to breathe is a moral choice.  Some aspects of environmentalism are about survival – both for people, and for companies.

A business leader that is blind to that will not be a business leader for long.  But that risks getting us off the subject of religion and onto evolution …

Add your thoughts to this topic